ECB steps up campaign for structural reform
8 July 2004 , FRANKFURT - The European Central Bank has increased pressure on the 12-eurozone states to forge ahead with structural reform and called on them to introduce strict spending controls in its monthly bulletin released Thursday. While the ECB's report paints an updated picture of the currency bloc's economic prospects, it reprimands the eurozone member nations for failing to tackle budget and labour market problems as they battle in the face of fierce voter and union opposition to proceed with un
8 July 2004
FRANKFURT - The European Central Bank has increased pressure on the 12-eurozone states to forge ahead with structural reform and called on them to introduce strict spending controls in its monthly bulletin released Thursday.
While the ECB's report paints an updated picture of the currency bloc's economic prospects, it reprimands the eurozone member nations for failing to tackle budget and labour market problems as they battle in the face of fierce voter and union opposition to proceed with unpopular reforms of their deficit-hit, welfare states and rigid job markets.
Echoing comments made at last week's ECB press conference by bank chief Jean-Claude Trichet, the July monthly bulletin called on eurozone governments to reaffirm their commitment to fiscal consolidation as the highest priority adding that the ECB's governing council believed the pace of structural reforms in the labour market also needed to be accelerated.
"Indeed, the economic recovery offers the opportunity to put public finances on a sounder track", the bulletin said just one week after the bank's 18-head council left rates at a post World War II low of 2 percent.
"This requires a strict control of expenditure in the implementation of this year's budgets and a comprehensive reform strategy as a basis for next year's fiscal planning," it said.
The ECB remarks follow last year's effective suspension of the so- called Growth and Stability after the eurozone's two biggest states, notably Germany and France, breached the pact's strict fiscal targets.
Italy managed to avoid a humiliating budget warning this week after promising to knock its public finances into shape with a package of budget cuts.
"In the view of the governing council, the Stability and Growth Pact should not be changed, even though its implementation within the current framework could be improved," the bank wrote in its bulletin.
Despite the likelihood of eurozone growth lagging behind almost every major economy around the world, the ECB remained confident that the currency bloc was now on an expansion course with higher oil prices remaining the major threat to the upswing which emerged around new year.
While the US economy is tipped to expand by 4.4 percent this year, analysts believe the economy built around Europe's common currency will be lucky to post a 1.8 percent growth rate in 2004.
But the ECB insisted: "All in all, the latest indicators of output and expenditure, as well as the most recent survey data, remain consistent with ongoing growth in real activity during the second quarter."The conditions for a broadening and strengthening of the recovery are in place," the ECB declared.
But with the eurozone expected to post only modest growth this year, unemployment remaining stubbornly high and opinion poll ratings for the bloc's key ruling political parties at rock bottom, the ECB's push for greater structural reform also came as signs emerged that some governments are stepping back from rigorous economic reforms before a series of major elections.
At the same time, the ECB admitted it was concerned about that the risk of high oil prices dampening growth.
"Over the short term, oil prices continue to exert upward pressure on the general price level," the ECB said.
But faced with the threat of high energy costs and an inflation rate running above the ECB's 2 percent target, the bank's renewed campaign on structural reforms also appears to be linked to concerns that the bank might be forced to tighten monetary policy before the eurzone's recovery has gained momentum and governments have chipped back their deficits.
Even though the ECB kept its benchmark refinancing rate at 2 percent for more than 12 months, analysts say that a premature hike in borrowing costs could threaten the euro currency bloc's fragile upswing and peg growth at its current weak rate for a prolonged period.
Subject: German news