World Economic Forum: Davos

Reforms ‘still needed’ after ECB action: Merkel

Reforms 'still needed' after ECB action: Merkel
Angela Merkel at Davos meeting. Photo: World Economic Forum
German Chancellor Angela Merkel told the World Economic Forum in Davos on Thursday that any action by the European Central Bank to boost the eurozone's struggling economy should not ease the pressure on governments to enact reforms.

Merkel, who addressed the Swiss gathering of business and political elites minutes before the ECB unveiled its €1.1 trillion bond purchase programme, insisted that governments must seize the opportunity to "do your homework as regards your fiscal consolidation".   

"No matter what sort of decision the ECB will take, we should not become diverted from the fact that we as politicians need to put a framework for recovery in place," Merkel told the forum.
"Europe continues to be confronted by great challenges," said the chancellor, a regular Davos visitor.

"We have often talked about the debt crisis . . . we have this somewhat under control but we are not out of the woods yet." 
The European Central Bank has come to the rescue of the eurozone on several occasions since Greece nearly dragged down the bloc with its debt, with the bank unleashing an arsenal of unconventional measures since late 2011 to calm jittery markets.
Interest rates have been pushed to a record low and massive amounts of liquidity unleashed on the market to stimulate the economy.
But growth has proven elusive with the bloc managing just an 0.8 percent expansion in 2014 and one percent seen for this year.

Unemployment also remains stubbornly high, well above ten percent.
On Thursday, the ECB deployed the unconventional weapon of bond purchases to prevent the bloc from sliding into deflation.

'Time to do homework' 

Merkel told governments that the breathing room given by the ECB should not be wasted, warning that one day, the stimulus measures would have to be removed.
"Italy is carrying out very ambitious reforms," she said.

"France is on the way to doing that. But others have already done it." 
Germany has led a chorus of opposition to the bond buying scheme, believing that it might give some countries less incentive to reform.
That stance has drawn criticism from others arguing that Europe's economic giant should loosen its purse strings more to help its neighbours.
But Merkel defended her country's stance, saying it would be irresponsible for her government to do otherwise.
"Some people accuse us of being too tight with our money but let me remind you that Germany has a massive demographic challenge," she said.

"More than six million people will be lost to our market because they are retired.
"If we don't keep our debts down then we will leave a very heavy burden to the next generation . . . this would be irresponsible." 

Ahead of the ECB's latest announcement, former Bundesbank chief Axel Weber also put up a harsh criticism of its repeated moves to undertake unconventional measures to stimulate the economy.
"The real issue is the ECB has continuously bought time for European policy makers to fix the issue," Weber said, but "they didn't do that" in the past few years.
"Europe has lost the good opportunity to do many necessary things they could have done in a more benign environment."
Separately, Eurogroup chief Jeroen Dijsselbloem sang the same tune.
"Whatever the ECB does, it doesn't take us off the hook," said Dijsselbloem, who is also finance minister for the Netherlands.

"We really have to step up pace in making our economies more competitive and that's something that the ECB cannot do for us," he told AFP.

"They can give us more time, they can take off a little pressure, they can be accommodative but they cannot fix the competitiveness of Europe." 

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