ECB policymakers rebuffed
suggestions that Europe should ease up on
austerity and said that while the central bank has room to cut interest rates,
such a move would not necessarily help the economy much. European Central Bank
Vice-President Vitor Constancio said that seeking to stimulate economies by
stopping measures aimed at cutting government debt could merely increase
countries' borrowing costs rather than triggering growth.
Finance leaders of
the G20 economies last Friday edged away from a long-running drive toward
cutting spending and raising taxes in rich nations, rejecting the idea of
setting hard targets for reducing national debt in a sign of concern about a
sluggish global recovery. With budget cuts blamed for a second straight year of
recession in the euro zone, the EU's top economics official Olli Rehn indicated
over the weekend that more flexibility on tough economic targets was needed. His
boss, European Commission President Jose Manuel Barroso, said on Monday that
austerity had reached its natural limits of popular support.
Recent surveys and
data have pointed to economic weakness spreading to the euro zone core, and on
Wednesday Germany 's Ifo
sentiment indicator came in weaker than the most pessimistic of forecasts as
poor exports undermined Europe 's largest
economy. "We certainly still have some margin of manoeuvre to take
decisions, and as (ECB) President Draghi said in the latest press conference,
we stand ready to act if economic conditions continue to provide bad news, as
has unfortunately been the case," Constancio told the European Parliament
in response to a question.
But ECB policymakers did not accept that weaker
growth was a reason to change course on reform, insisting that more balanced
budgets were essential to revive sustainable growth. "Economic adjustment,
both internal and external, has been significant, has implied high costs in
terms of unemployment and should not (be) put into risk of unravelling
now," Constancio told the European Parliament. Joerg Asmussen, who sits on
the ECB's Executive Board, also spoke of a risk of slipping back and warned
against taking the current market calm for granted. "(A) sound fiscal
condition is really a precondition for growth," he told the Financial
Times. "If one postpones fiscal consolidation to a later day, that comes
not without risks." ECB Governing Council member Ardo Hansson said EU
states must push economic reforms further, strengthen public finances and avoid
complacency. German Bundesbank President Jens Weidmann had a stern message for France , the
euro zone's second major economy, which is slipping already this year from
commitments to cut its budget deficit. Lessons should be drawn from earlier
breaches of debt limits, Weidmann said. "France especially has an important
role to serve as an example for credibility of the rules and trust in the
sustainability of public budgets."
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