The European Central Bank will continue to provide stimulus until inflation rebounds but its room to manoeuvre has been reduced, so governments need to start shouldering some of the burden, ECB policymaker Benoit Coeure said yesterday.
Arguing that the ECB’s unprecedented stimulus has so far been appropriate, Coeure also warned that stimulus comes with side effects and faces effective limits, requiring a renewed focus in the public debate about who is responsible for reviving the eurozone economy.
“Postponing the necessary reforms is not a valid option anymore,” Coeure told a conference yesterday. “Procrastination and forbearance have not served the euro area well... If our banks had been cleaned up and strengthened early after the crisis, our growth path would today be higher.”
Fighting the threat of deflation, the ECB has kept rates below zero for years and buys €80 billion of assets per month, hoping to cut borrowing costs, stimulate spending and revive growth.
Coeure said that while the bottom for rates, where households and businesses switch to cash, is still below the ECB’s -0.4 per cent deposit rate, there is also an economic lower bound, where the negative impacts from weakened monetary transmission outweigh the benefits. Still, Coeure dismissed any suggestion the ECB was about to give up, arguing that missing the bank’s two per cent inflation target too often could lead to permanently lower inflation, a hard to break cycle.
“Monetary support for the recovery will continue until inflation is sustainably adjusting to our objective,” he said.