ECB Coeure: Need Structural Reforms For Single Currency’s Sake

GENEVA (MNI) – Though not yet where policymakers would like it to be, eurozone economic growth is picking up and one should not speak as though there were no growth, European Central Bank Executive Board member Benoit Coeure said Tuesday.

Speaking at an economics conference, Coeure conceded that absent structural reforms, monetary authorities would be obligated to do more, but he noted that this could entail risks.

“Growth is picking up,” he said, albeit “certainly not up to the levels we’d like to see. Potential growth is clearly much below what it used to be.”

“Let’s not discuss under the assumption that there’s no growth in the Eurozone,” he added. The economy is expanding “and growth will continue to accelerate.”

If other policymakers do not step up their reform efforts, then “the more we would have to do,” he said.

“I would call it structural dominance,” he said. “If nothing takes place on

[the structural reform] side, then we would have to do more. And then we would do more.”

He continued: “If there is not much taking place on the structural reform front, if there is not much taking place on the fiscal policy front,” then the additional policy activism required from the ECB could involve side effects.

“There is no free lunch,” he said, pointing to “possible future risks for financial stability and the like.”

The ECB has thus far “curbed those risks,” but if obligated to do much more might have difficulty continuing to do so, he indicated.

Coeure criticized the current European structures as “not fit for the purpose of sustaining the single currency,” which he attributed to a “bleak performance in structural terms.”

The proper approach to much-needed structural reforms would be comprehensive and thus embrace all markets rather than focusing myopically on a particular area.

It is important to mitigate the short-term costs of such reforms, he said. In this context, he added, many countries have fiscal space and “this space would be better used.”

“There are also many places where there is no fiscal space,” he observed, and in these there is “no point in trying to invent” what doesn’t exist.

A critical point is that “growth-friendliness matters a lot,” he said. “In all countries there is room to improve the growth-friendliness of fiscal policy.”

Coeure urged authorities to take a broad view not limited to reform in individual member states. “A little bit less competitiveness at country level” would be useful in implementing reforms.

The idea would be not to implement less significant reforms at the national level, but more at the level of the euro area than hitherto.

Source: MNI


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