European Central Bank offers economic policy advice

Eurozone woes seem to be going nowhere, but there are different angles regarding the causes and remedies. The blog post Economic policy making becomes challenging mentioned the latest reports from the European Commission:

Directorate-General for Economic and Financial Affairs (Ecfin) of the European Commission: 2011 Report on Public finances in EMU (European Economy 3/2011)

European Commission (Ecfin): Interim Forecast September 2011 (14 pages)


European Central Bank

The editorial of the latest Monthly Bulletin of the European Central Bank (15 September 2011) is available in 22 official EU languages. The English version:

Editorial – 15 September 2011 – Monthly Bulletin

Uncertainty and risks abound:

... the Governing Council expects the euro area economy to grow moderately, subject to particularly high uncertainty and intensified downside risks.

The ECB does not abandon its anti-inflationary role, but it has participated heavily through market measures to shore up liquidity for banks and governments in trouble. However, the European Central Bank wants to see swift and decisive economic policy action from governments and parliaments in the euro area:

Turning to fiscal policies, a number of governments have announced additional measures to ensure the achievement of their consolidation targets and to strengthen the legal basis for national fiscal rules. To ensure credibility, it is now crucial that the announced measures be frontloaded and implemented in full. Governments need to stand ready to implement further consolidation measures, notably on the expenditure side, if risks regarding the attainment of the current fiscal targets materialise. Countries that enjoy better than expected economic and fiscal developments should make full use of this room for manoeuvre for faster deficit and debt reduction. All euro area governments need to demonstrate their inflexible determination to fully honour their own individual sovereign signature, which is a decisive element in ensuring financial stability in the euro area as a whole.

Fiscal consolidation and structural reforms must go hand in hand to strengthen confidence, growth prospects and job creation. The Governing Council therefore urges all euro area governments to decisively and swiftly implement substantial and comprehensive structural reforms. This will help these countries to strengthen competitiveness, increase the flexibility of their economies and enhance their longer-term growth potential. In this respect, labour market reforms are key, with a focus on the removal of rigidities and the implementation of measures which enhance wage flexibility. In particular, there is a need for the elimination of automatic wage indexation clauses and a strengthening of firm-level agreements so that wages and working conditions can be tailored to firms’ specific needs. These measures should be accompanied by structural reforms that increase competition in product markets, particularly in services – including the liberalisation of closed professions – and, where appropriate, the privatisation of services currently provided by the public sector, thereby facilitating productivity growth and supporting competitiveness.

Not to everybody's liking, but the ECB carries a big stick.



Ralf Grahn