Dana Khalili replied 23rd Feb '16:
Promoting economic growth in the European Union is not the sole responsibility of the ECB. Yes, Europe's faltering economy needs help, urgently. Nevertheless, what the region requires are not continual bailouts from the ECB, but for its governments to act, especially on fiscal policy and financial reform.
Since 2008, the region has experienced a deep recession, a quickly interrupted recovery, another long, mild recession, and finally a slow recovery. In fact, if we look at this as a long-term issue, and not one that the region is currently faced with, the region’s problem is part of a predicament shared by other advanced economies. Vítor Constâncio, Vice-President of the ECB, recently alluded to this, saying, “Decades of declining economic and productivity growth rates, prolonged periods of low inflation and an untamed financial sector fuelling asset price booms are part of the problem. This constitutes a very challenging situation that cannot be solved by one policy area alone, be it monetary policy or any other.” Currently, under its existing program of quantitative easing, the ECB buys 60 billion Euros worth of bonds a month with the aim of reducing long-term interest rates. They announced just last month that these purchases would continue until “at least September and beyond, if need be.” Year after year, the ECB has adopted policies in response to the situation of low inflation and mediocre recovery. But even the ECB has recognised that monetary policy cannot address all the problems and that structural reforms and fiscal policy should help to overcome them.
The responsibility for reviving growth in Europe mainly rests with governments. Those with enough fiscal headroom to safely increase public borrowing (Germany, especially) must to do so. Sadly, these countries are reluctant. Looking to the future, a financial restructuring in the region would make a real difference. Many global fiscal commentators agree that what needs to happen is Europe should create two classes of government debt, one with a joint guarantee, up to a maximum of 60 percent of gross domestic product, and one without. The safe debt would be cheaper to service even if Europe's problems again took a turn for the worse, while the risky debt would command a premium and hence apply automatic fiscal discipline.
All policies to date have proved futile. First came zero interest rates, then quantitative easing, and now negative interest rates. And the shift to negative rates, economists predict, will only compound the risks of financial instability and set the stage for the next crisis. Nearly one-third of developed market stocks are from countries where central banks have adopted a negative interest rate and this will weigh more heavily on the stock market and pose a threat to the drivers of the global economy. The region needs to deliver on its promises of stable prosperity, taking into account that societies do not live in the long-term but in the here and now. The task requires new institutional reforms and a sense of unity.