Much-neededeconomic reforms in the EU may be delayed because of political complacencybrought about by the ECB's ultra-loose monetary policy, according to Italy'sfinance minister.
Speakingat the annual meeting of the European Bank for Reconstruction & Development onMay 11, Pier Carlo Padoan said the monetary stimulus dished out by the centralbank as quantitative easing and zero-bound interest rates may hinder structuralreforms the EU needs in order to overcome stagnation and youth unemployment.
"Oneof the problems with QE and low — zero — interest rates would be that, ifthere's QE, then policymakers would say, 'I don't need to do structural reforms,monetary policy would do it for me'," he said. "Some colleagues ofmine are saying that, if you need reforms, then the lower the interest rate theless you do the reforms. … In my current circles this [mentality] has been verypopular for some time."
Launchedin March 2015, the ECB's QE program involves the institution buying eurozonesecurities, thereby pumping money into the financial system in a bid to boosteconomic growth. Initially €60 billion a month, the program to €80 billion a month inMarch 2016, and the new phase will include the purchase of nonbank corporatedebt. Also in March, base interest rates were cut to zero percent forrefinancing operations and negative 0.40% for deposits; deposit rates have beennegative since 2014 and the last time they were above 1% was in January 2009.
Meanwhilethe eurozone economy is stuck in a rut of virtual stagnation, with 0.3% GDPgrowth registered in the fourth quarter of 2015, compared to the previousquarter, according to Eurostat data. The last time eurozone GDP growth edgedabove 1%, on a quarter-over-quarter basis, was in 2005.
Padoan,who is also chair of the EBRD's board of governors, has, in the past, stressedthe importanceof deeper eurozone integration, calling for the swift implementation of bankingunion and a common deposit insurance scheme. He has also pushed forgrowth-friendly fiscal policy and the appointment of a eurozone financeminister. Meanwhile the EU is trying to push through capital markets union,which would make cross-border financing more easily available to Europeancompanies; in April, European Financial Services Commissioner Jonathan Hillsaid one obstacle isoverly complex local regulation.
Atthe EBRD meeting, Padoan said the pace of reform has accelerated somewhat inrecent times at the country level, notably in Italy and France, but he alsowarned that much more needed to be done. Without unity in public spending andregulation, the benefits of cheap ECB money could go to waste.
"Whatyou need to make the best of good monetary policy is to increaseconvergence," he said, adding that Europe needs to come up with "aconcept of the European public good."
"Europe so far has not done enough," he said."Governments, and here I include myself, are responsible for not coming upwith appropriate responses to these challenges."