World Economy

Low ECB Rates an Opportunity to Reform

Low ECB Rates an Opportunity to ReformLow ECB Rates an Opportunity to Reform

Easy monetary policy gives eurozone governments a window of opportunity to enact the reforms needed to boost growth once interest rates have to rise, European Central Bank President Mario Draghi said on Wednesday.

“ECB research finds no convincing evidence that high interest rates lead to more reforms,” Draghi told a conference in Frankfurt. “In fact, the opposite is more likely to be true: lower rates tend to promote reforms, since they lead to a better macroeconomic environment,” Reuters reported.

“With monetary policy being accommodative, we now have a window of opportunity to take these measures,” Draghi added.

The ECB president disputed the view that stimulative monetary policy discourages employment and wider market reform by taking pressure off governments to act during periods of crisis.

A failure in some countries to match reforms to labor markets with changes to the marketplace for goods and services during the financial crisis “because of powerful vested interests” meant that wages fell without a corresponding drop in prices, Draghi said. Instead, companies took the chance to increase their margins, meaning consumers were squeezed.

He said that while the crisis showed that more “flexible” economies were more resilient—especially for countries that were part of a monetary union—highlighting the growth benefits of reforms was not enough to make them widely acceptable to the public, and policymakers needed to bear in mind the “inclusiveness” of economic proposals .

“There is an increasing perception that growth in the past has not been sufficiently inclusive, and was not always associated with rising living standards for everyone. This has fuelled the belief that some have been “left behind” by the spread of market forces,” he said.

“Reforms have to take into account equity as well as efficiency.”


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