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In his address, Dr Dombret argued that while it was necessary to draw the right conclusions from the current crisis, we should not discard the lessons we have learned from previous crises – for they remained equally valid. The cautious role of central banks in spurring economic growth was such a lesson.
"In the 70s and 80s, some central banks tried to foster economic growth by reducing interest rates considerably – even at the price of significantly higher inflation rates. In contrast, inflation rates in countries with independent central banks focused on delivering price stability were comparatively low in these years. While average inflation in Germany stood at 3.4 per cent, it reached 8.2 per cent in France, 12.5 per cent in Italy and 12.4 per cent in Spain. The important point here is that lower inflation did not come at the expense of lower growth. It turned out that quite the opposite is true – the best contribution to sustainable growth a central bank can make is to keep prices stable."
Dombret went on to say however that it was also of utmost importance to restore and preserve confidence in the resilience of the financial system as a whole. The best contribution to sustainable growth a central bank could make was to keep prices stable, he claimed, but central banks could not deliver this growth on their own. The fundamental problems of the euro area were structural in nature and as such this requires a structural solution. All that central banks could do was to buy time – time for governments and parliaments to consolidate budgets, improve the functioning of product and labour markets and recapitalise banks.