FRANKFURT – A member of the European Central Bank’s rate-setting council has said monetary policy cannot boost long-term growth and called for reforms by governments to make the weak economy more investment-friendly.
The remarks come as ECB officials weigh whether to launch more stimulus measures to pull the 18 countries that share the euro out of an extended period of sluggish growth and high unemployment. The ECB is the currency union’s chief monetary authority.
Jens Weidmann said in the text of a speech in Madrid on Monday that low interest rates and stimulus measures can boost short-term demand but that central bank action “cannot permanently boost growth prospects.”
Weidmann, who also heads Germany’s Bundesbank central bank, said that long-term growth depended on countries’ willingness to lower barriers to investment by streamlining bureaucracy and rules on hiring and firing.
His remarks come after ECB President Mario Draghi said last week that the bank was ready to do more to boost the economy. The ECB is currently purchasing bundles of bank loans in the form of bonds, an effort to increase the flow of credit to companies. Draghi suggested the ECB could buy a broader array of financial assets to increase the stimulus program’s effectiveness and bring up inflation, which is too low at only 0.4 per cent annually.
Weidmann has been a skeptic of some central bank stimulus measures, such as large-scale government bond purchases.
He called on governments to undertake politically difficult reforms to make Europe a better place to invest and tackle “the problem that looms largest in our monetary union today: the euro area’s weak growth prospects.”
He said governments could cut the bureaucracy that makes it hard to start a business; move to a single market for information technology by unifying privacy, data protection and copyright requirements; and streamline rules on hiring and firing people.
Weidmann is only one vote on the 24-member ECB council and cannot by himself block more ECB stimulus. But his voice carries weight because he is from Germany, the eurozone’s largest and most politically influential member.