Davos Diary: Merkel: Time for Europe to Do Its Homework
European countries need to do the work to make their economies more competitive, despite new stimulus from the central bank.
Europe’s weaker economies may be feeling flush with the tide of money set to be unleashed by the European Central Bank. But German Chancellor Angela Merkel warned Thursday that nations must start studying up for when the wave of stimulus inevitably recedes.
“Now is the time to do your homework,” Merkel said at a headline forum at the World Economic Forum in Davos, Switzerland. She was pushing for proactive economic reforms like curbing bloated government spending and sclerotic bureaucracies that stymie entrepreneurs, investors and, ultimately, long-term recovery.
Though she stopped short of pointing fingers, Merkel pointed noted that Italy was “finally” getting around to making necessary economic reforms, and France was also “on the way.”
Her comments came as the ECB announced — in Germany — a much-anticipated new plan to stimulate the economy.
ECB President Mario Draghi said the central bank will buy 60 billion euros in European government bonds every month through September 2016. In doing so, the bank will push more money into the economy to jumpstart lending, investment and, hopefully, overall growth. The United States, Britain, and Japan all adopted similar “quantitative easing” programs after the economic crisis in 2008. Japan’s program is ongoing.
But the EU is composed of multiple, smaller economies — each with their own national laws, problems, and debts. In the ongoing debate about how to fix the European economy, Germany has been quick to chastise Italy, France, and other countries over floundering growth that eventually undercuts the economy.
The influx of cash pushed into the system by the central bank will drive down rates for governments, making it easier for them to borrow money. But Merkel warned that the bank’s stimulus wouldn’t last forever.
“If you are not able to remain within the bounds of your budget now … I don’t know what’s going to happen to you,” Merkel said.
Merkel said the ECB alone cannot create growth, and urged political leaders to create a more attractive investment environment.
“We need to put in place, as politicians, the necessary framework for progress,” she said.
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