ECB watchdogs issued a stark warning after carrying out an analysis of individual state finances in the eurozone and stated that governments must invest in “more growth-friendly” policies in order to clear the growing debt within the European currency.
The move also indicates a disagreement between the central bank and and the demands of individual states who object to the centralised reforms called for by the ECB.
The directive by the ECB also indicates that the bank is moving away from a loose monetary policy and is a strong indication that interest rates could be raised in the short term.
In the second quarter, the eurozone economy grew by 0.6 per cent, a slight increase over the first three months of the year. At the same time, the monetary union has now shown the lowest unemployment rate since 2009.
The European Union’s central bank has called for greater punishments
After years of crisis policy, financial markets and governments have become accustomed to the fact that money is virtually zero, and that the ECB will intervene if it is threatened again.
Efforts to clean up their own budget have long since disappeared in debt countries such as Italy. The fact that the debt ratio of around 133 per cent has recently stabilised – in an environment in which the eurozone is in the middle of the upswing and interest rates continue to be historically low – is already seen as a success in Rome.
However, every additional percentage point that Italy has to spend on debts as soon as interest rates pick up again, will push up the debt ratio in the notoriously slow-growing country, possibly shaking an already fragile system.
ECB economists warned in their report: ”In times of tense public finances and continuing low structural growth, both being the legacy of the recent crisis, it is crucial that financial policy is as growth-friendly as possible.”
In the period from 2013 to 2015 – in the first consolidation years after the debt crisis – budgets were not focused on growth.
Expenditure that can particularly stimulate the eurozone in the long term is, in the view of the ECB experts, above all state…