July 3, 2014 / 6:27 PM / 6 years ago

ECB's Coeure says only productivity growth will end low rates

BERLIN (Reuters) - The only way to move from current low interest rates is to reinvigorate productivity in the euro zone, with states continuing reforms and budget consolidation, European Central Bank Executive Board member Benoit Coeure said on Thursday.

Benoit Coeure, executive board member of the European Central Bank (ECB), speaks during an interview with Reuters in Frankfurt February 12, 2014. REUTERS/Ralph Orlowski

Speaking after the ECB earlier left rates at record lows, Coeure said governments should not view the current period of low rates and favourable market sentiment as “an invitation to abandon the path of fiscal prudence”.

Rather, they should “accelerate reforms aimed at freeing up growth opportunities”, he added at an economics conference hosted by Germany’s conservatives in Berlin.

Earlier, Bundesbank chief Jens Weidmann expressed concern at the same conference that low interest rates are easing pressure on euro zone governments to shape up their economies, and said the ECB should not leave policy loose for too long.

In the long-term, there is no trade-off between growth and sound public finances, Coeure said in comments that came against the backdrop of a debate about fiscal policy in Europe.

Italian Prime Minister Matteo Renzi, who took over the European Union’s rotating presidency this week, has led calls for Europe to move from budget austerity towards expansion.

“Governments have to continue on their path towards resilient public finances,” said Coeure.

“They should stick to the rules they have agreed under the new EU fiscal framework and not stretch them to the point where the credibility of this framework would be harmed.”

EU leaders signaled at a summit last week that they were ready to give member states extra time to consolidate their budgets as long as they pressed ahead with economic reforms. Leaders agreed to make “best use” of the flexibility built into EU budget rules.

Coeure said consolidation efforts should focus on budget items that may stand in the way of dynamic and inclusive growth, he said, whereas reforms should prioritize removing excessive regulation and creating stable institutions.

Turning to the ECB’s plans for targeted new four-year loans to banks aimed at increasing their lending, Coeure said the ECB was confident banks with strong business models would be able to make full use of these so-called TLTROs.

“In particular, given the incentive structure embedded in the TLTROs, the program is particularly attractive for banks with a dynamic lending performance,” he said.

Reporting by Stephen Brown; Writing by Alexandra Hudson and Paul Carrel

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