Monetary policy won’t be enough to revive eurozone, ECB economist warns

23 Apr 15

The eurozone economy looks set to strengthen this year as the European Central Bank’s expansionary monetary policies take effect, but governments need to do more to boost long-term growth, the bank’s chief economist said today.

Peter Praet said structural as well as monetary policies were required to tackle the eurozone’s weak growth potential.

‘The euro area needs a combination of policies for the cyclical recovery [that we expect] to become a lasting one,’ he said.

‘Accommodative monetary policy and determined structural reforms need to go hand-in-hand.

‘The euro area economy seems to be turning the corner. Both the hard and soft data suggest that the activity is gathering momentum and looks set to strengthen over the course of the year. We are therefore seeing the beginning of a cyclical recovery. But it is not yet a structural one.’

This meant that, although the business cycle was improving, the decline in the eurozone’s potential growth rate had not been dealt with. A stronger eurozone recovery ultimately came down to higher investment, how easily firms can do business and public institutions, Praet said.

He added while monetary policies created a ‘window of opportunity’ to implement structural reforms and spur growth over the short term, it could not do this over the long term.

  • Judith Ugwumadu
    Judith Ugwumadu

    Judith writes about public finance, public services and economics across Public Finance International and Public Finance. She previously undertook reporting stints at Financial Adviser, Global Security Finance and The Sunday Express.

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