Daily Management Review

Eurozone economy slowdown is no longer temporary


The slowdown in economic growth in the euro zone should no longer be seen as a “temporary downturn,” and the European Central Bank should prepare for a worsening of the situation, said Olli Rehn, member of the ECB Board of Governors and Head of the Bank of Finland.

"We have a number of tools that are very effective and which together have an even greater effect than individually," he said. "We clearly indicated that we would consider measures to mitigate the possible negative side effects of negative interest rates if we continue to lower interest rates or keep them at a very low level for much longer," he added.

The regulator “may also renew purchase of new assets at any time,” and there is a “certain degree of flexibility” regarding legal restrictions on the purchase of bonds.

According to Head of the Bank of Finland, the euro zone needs the best combination of fiscal and monetary policies to respond to a slowdown or recession.

“We also advocate for the fiscal potential of the euro zone, which, from my point of view, should be focused on investments to finance economic reforms in the member states,” he said in a separate interview with the Italian newspaper La Repubblica.

Following the June meeting, the ECB decided to extend the period of record low interest rates. Now the central bank intends to keep rates at their current levels at least until the end of the first half of 2020, which is six months longer than previously planned. 

ECB head Mario Draghi said that the central bank may have to soften its monetary policy by reducing interest rates or buying up assets, if inflation does not begin to return to the target level.

source: reuters.com