Central bankers fear lost chance to rescue euro
CENTRAL bankers from across Europe banded together yesterday to urge Eurozone governments to seize the opportunity given by the ECB to reform their economies, while they still have the chance.
European Central Bank (ECB) board member Joerg Asmussen said that growth is vital to ending the sovereign debt crisis, but that economic reforms, rather than more spending, are the solution.
“The answer to the crisis is not less but more Europe,” he said, suggesting that increased language education and a European network for job placement would help increase labour mobility.
Asmussen also claimed that a larger central EU budget could help, though he did not endorse more spending by national governments.
“The fiscal compact can be complemented by growth-enhancing measures. This makes sense as a supplement, but the fiscal compact cannot be renegotiated or softened,” he said.
Asmussen reminded leaders that while the ECB is doing what it can to help by keeping interest rates low and keep liquidity in the financial system, the support can only be temporary – and so leaders could act fast.
ECB vice president Vitor Constancio backed him up, explaining “we would need to reduce liquidity to go back to normal times.
.“The exit [from unconventional policies] will come some day,” he said, reminding leaders that the ECB only loaned €1 trillion to banks to avoid a credit crunch, not to restore growth themselves.
The Bank of England’s Adam Posen also weighed into the debate, telling governments they must recapitalise banks to bring an end to the crisis.
“The source of current problems is not Greece,” he said. “It is that various financial exposures we all have in the interbank market are not yet resolved because certain financial institutions are insufficiently capitalised, insufficiently disciplined.”