ECB official: Stimulus needs help from governments

AP News
Posted: Feb 12, 2015 4:46 AM

FRANKFURT, Germany (AP) — A top European Central Bank official says the bank's new 1.1 trillion euro ($1.2 trillion) monetary stimulus could "fall on barren ground" if governments do not cut red tape and excessive regulation.

The bank will start purchasing government bonds with newly printed money next month, a step aimed at increasing alarmingly low inflation and warding off long-term stagnation.

ECB executive board member Peter Praet said in the text of a speech in London on Thursday that "perhaps the biggest risk we face with our new measures is that they fall on barren ground because governments are not doing enough to raise confidence in the future."

The ECB announced the stimulus Jan. 22 in an effort to raise growth and an alarmingly low rate of inflation. Prices in the 19-country euro currency union fell 0.6 percent annually in January. The stimulus should lower interest rates even further. Some bond-market yields have even fallen below zero ahead of the start of the program.

Praet said monetary policy can increase returns on starting a new business by lowering the cost of the capital needed to start it. Government reforms, he said, would raise the returns on the business, "for example by reducing costs arising from unnecessary red tape."

Eurozone governments such as France and Italy have been slow to implement so-called structural reforms that clear away excessive regulation on hiring and firing people and the mounds of paperwork required to even start a business. Praet singled out Spain as one country that has tried such steps and seen a faster recovery.

"If we take advantage of the window of opportunity that exists today, that possibility is there for the whole euro area," he said.

The eurozone is struggling to overcome troubles over high government debt in several countries and slow growth. Greece, one of the hardest hit, is trying to negotiate with other eurozone governments for new terms on its bailout loans that would place less emphasis on budget austerity and more on re-starting growth.