FRANKFURT (Reuters) - The European Central Bank cannot solve the euro zone debt crisis on its own, ECB Executive Board member Peter Praet said on Monday, adding that a delay in reforms could make the central bank’s policy less effective.
To soften the blow from the debt crisis the ECB has cut interest rates to a record low, flooded the banking system with unlimited liquidity and launched a new bond-purchase program to ease funding costs of debt-strained member states.
But there was a fine line between providing the necessary support and taking away incentives for governments and banks to introduce the necessary reforms, Praet said.
“There are limits to what monetary policy can and should credibly do: monetary authorities cannot be expected to solve problems which lie well outside their current official remit,” said Praet in a speech to be given at a conference in Berlin.
“If domestic policy-makers and other economic actors delay necessary reforms because they can count on the central bank to provide support whenever market conditions deteriorate, monetary policy may become insufficiently effective, as well as biased towards the short term,” he added.
Reporting by Alexandra Hudson, writing Eva Kuehnen