Business leaders in Europe gave a mixed welcome to the European Central Bank’s moves to bolster growth and inflation in the euro area yesterday, with many – especially in Germany – concerned the programme could delay unpopular economic reforms.
The ECB launched a government bond-buying programme despite opposition from Germany’s Bundesbank and concerns in Berlin. Supporters say it will get credit flowing to boost growth.
“This is a step in the right direction and we’ll have to watch and see how it plays out,” Swiss drugmaker Novartis AG Chief Executive Joe Jimenez told Reuters.
“This is one additional step that could help Europe now come out of slow growth to something more like what has happened in the US It worked in the US and I think it can work here.”
European government borrowing rates fell to record lows, the euro weakened and stock markets rallied after the ECB unveiled the asset-purchase programme.
Eurozone inflation turned negative last month, far below the ECB’s target of close to but below two per cent, raising fears of a Japan-style deflationary spiral.
“Any measure which can contribute to reignite inflation...is positive for Remy Cointreau,” a spokeswoman for the French spirits group said.
“The dollar appreciation against the euro is also a good lever for the group’s profitability because over 60 per cent of the group’s sales are in US dollars or currencies linked to the dollar, while most production costs are in euros.”
The euro fell to an 11-year low against the dollar.
Rupert Stadler, chairman of carmaker Audi, welcomed the fall in the euro as it will make German exports more competitive and crucial investments in the United States cheaper.
“There is a big opportunity for us to grow in the United States and, with the euro dollar exchange rate at the moment, it is a little bit easier,” he told CNBC television in Davos.
But his was a lonely voice among German companies and institutions, most of whom have not been through the crisis that has blighted some southern European economies.
Many Germans worry they will have to bankroll measures that remove incentives for struggling members states to carry out the reforms prescribed by German Angela Merkel, who warned European leaders again not to ease off.
“Regardless of what the ECB does,” she told an audience at the World Economic Forum in Davos, Switzerland, “it should not obscure the fact that the real growth impulses must come from conditions set by the politicians.”
Many German business leaders echoed Merkel’s attitude.
“Monetary policy cannot be a substitute for the necessary steps in economic and fiscal policy,” Ulrich Grillo, president of the Federation of German Industries, said. “Only responsible structural reforms can sustainably strengthen competitiveness.”
Georg Fahrenschon, president of the German Savings Banks Association, said the ECB had almost run out of measures although it had no choice but to start the programme to meet market expectations that it itself had created.
“Today, already only a small part of global growth comes from Europe,” Fahrenschon said in a statement. “If we do not manage to raise Europe’s competitiveness, the danger looms that a whole continent will be economically hung out to dry.”
Aengus Kelly, chief executive of Amsterdam-based aircraft leasing company AerCap, said that some companies would take unnecessary risks due to the flood of cheaper money while weaker ones would try to muddle through without restructuring.
“When money is too easy, people are going to take risks they shouldn’t take,” Kelly told Reuters in an interview.
“I think it would be much better if rather than trying to paper over the fundamental issues, Europe tackled labour market reform and made it easier for people to manage their business.”