MADRID (Reuters) - European countries with fiscal scope should act in a coordinated manner to implement structural reforms in conjunction with the European Central Bank’s measures to revive the sluggish economy, ECB policymaker Pablo Hernandez De Cos said on Wednesday.
“It is imperative that national and European authorities carry out structural reforms (...) to increase the growth potential of the euro area,” De Cos said during an event hosted by the University of Valencia.
De Cos said that available data indicated that the economic activity in the euro area remained weak in the third quarter and some countries faced the risk of recession.
The ECB cut rates deeper into negative territory last week and promised bond purchases with no end-date in a bid to reverse the renewed slowdown in the euro zone’s economy nearly a decade after the bloc’s debt crisis.
As Mario Draghi’s eight-year mandate nears its end, he faced pushback from the representatives of Germany and France as well as at least one of his own board members when he pushed for resuming the ECB’s bond-buying program, three sources told Reuters.
On Wednesday, both De Cos and ECB Vice-president Luis de Guindos said that so far monetary policy in the euro zone had been effective in boosting the economy, but this could not be the only tool.
Last Thursday, Draghi stepped up his rhetoric in calling for governments to spend their way out of a slowdown, singling out Germany, which is obsessed with running a balanced budget.
On Wednesday, De Cos said that given the deterioration in the growth projections in the euro zone it was necessary for fiscal policy to provide a greater stimulus to economic growth where there was scope.
“It is even more important that European political authorities value the desirability of deploying macroeconomic stabilization budget instruments at the level of the euro area as a whole, which would contribute to alleviate one of the main limitations of the original design of our common currency”.
Last week, the ECB cut inflation forecasts for the next three years and its growth projections for 2019 and 2020, providing a key justification for a new stimulus package.
Reporting By Jesús Aguado and Jose Elias Rodríguez; Editing by Andrei Khalip