Monetary Economics Not Broken in Europe

Monetary economics has not broken down in the eurozone and a gradual recovery from the bloc’s debt crisis will allow interest rates eventually to normalize, European Central Bank governing council member Philip Lane told an Irish newspaper on Saturday.

Almost two years after the ECB began its €2.3 trillion ($2.4 trillion) asset-buying scheme, inflation in the eurozone is still expected to undershoot its target of just below 2% at least through 2018, Reuters reported.

But Lane, governor of the Irish Central Bank, said a recovery and normalization of rates required patience. “I think we will see continued recovery but the nature of debt crises is that these recoveries can be quite gradual in nature,” Lane said.

“But ... I don’t think monetary economics has broken, the basic laws I think remain in place and essentially as Europe recovers interest rates will normalize and, you know, economies will normalize.”

ECB chief economist Peter Praet on Friday admitted the impact of the asset-buying scheme has been disappointing so far, but said growth was picking up.

Lane said there remained concerns about individual eurozone economies. “We have to remain vigilant to issues to do with the sustainability of sovereign debt and this I think is currently being managed in different ways but it remains an ongoing concern,” Lane said.

He said the biggest challenge for the Irish Central Bank was managing the fallout from Britain’s decision to leave the European Union, which Lane said was his worst day since his appointment as governor in late 2015.

“It was immediately obvious that ... (the) defining challenge for the country, for Europe and for us as a central bank is to manage Brexit,” he said.