German Central Banker Says Pro-investment Reforms are Needed

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.

via Canadian Business

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