ECB/Coene: Austerity vital but states should also reform for growth

22 October 2012

European Central Bank Governing Council member Luc Coene said austerity measures in the eurozone are unavoidable, but countries can and should counteract with reforms to boost growth.

Mr Coene was challenged by economist Paul De Grauwe of the London School of Economics, who said that policymakers should be foremost in promoting growth not reining it in. "To think that austerity could be avoided is naïve. The interest rates would have risen even more than they did", said Mr Coene, who is also governor of Belgium’s central bank.  He said that governments in the eurozone region, which has been mired in a debt crisis for almost three years, should have enacted structural reforms at the same time as pushing through austerity measures.

While a number of eurozone nations were keen to pass responsibility for solving the crisis to the ECB, the central bank was not involved in budget-setting and had to rely on commitments of Member States in return for help, Mr Coene said. Asked how he saw the situation developing in Spain, which is in deep recession and plagued by high borrowing costs, Mr Coene said that it would have to decide whether to request aid from the EU bailout fund, the European Stability Mechanism. However, this would not necessarily trigger bond buying, he noted.

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