03 December 2014

Bloomberg: It's a lose-lose situation for the ECB

Europe continues to lag in four areas that most economists deem important for the region’s ability to escape its alarming mix of low growth, high unemployment and shrinking potential, writes Mohamed A. El-Erian.

First, political leaders in countries such as France and Italy can do more to enhance competitiveness, production and growth.

Second, individual countries such as Germany can do more to improve the level and composition of demand, including spending on infrastructure initiatives.

Third, more determined actions are needed to remove pockets of excessive indebtedness in countries such as Greece.

Finally, all of them would be well advised to work better together to supplement monetary union with closer fiscal, banking and political integration.

Because of repeated delays in each of these four areas, gross domestic product in Europe is essentially stagnant, deflationary threats are rising, and unemployment remains high and is becoming more deeply embedded by the day, especially among the young.

So far, the ECB, with its “whatever it takes” commitment, has succeeded in calming financial markets, halting financial dysfunction and gradually restoring a better flow of credit to the real economy. In the process, it has bought important breathing space for politicians to get their act together.

The central bank, both publicly and behind closed doors, has also taken a leading role in verbalizing what the comprehensive changes in policies should look like. Meanwhile, its president, Mario Draghi, has taken considerable personal political risks on several occasions in advocating fiscal flexibility and structural reforms.

Full article on Bloomberg

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