FRANKFURT, Germany (AP) — European Central Bank head Mario Draghi says that stimulus measures including negative interest rates will have to stay in place longer if governments do not step up spending to help growth.
Draghi was quoted Monday by the Financial Times as saying: “Our policies will continue to work, albeit at a slower pace than if governments were spending more.”
“We have countries that have fiscal space and don’t use it,” he said.
He argued that the 19 countries that use the euro need to set up a central spending capacity since individual governments tend to follow their own priorities and not those of the currency union.
France has proposed setting up such a central eurozone fund but other countries, including Germany, the biggest eurozone member, have successfully limited its size and confined its purpose to promoting pro-business reforms instead of stabilizing the economy in times of trouble.
Germany has continued to run budget surpluses although they have become smaller in recent budgets. A package of measures aimed at reducing carbon dioxide emissions as part of the campaign against global warming does involve more spending. But analysts at Deutsche Bank report that it is “no game changer” in budget terms because the spending will be largely offset by additional revenue.
The ECB’s stimulus measures have encountered particular criticism in the German news media and from a vocal minority on the bank’s 25-member rate-setting council.
The measures announced Sept. 12 include lowering a key interest benchmark to minus 0.5% from minus 0.4% and starting 20 billion euros ($22 billion) in monthly purchases of government and corporate bonds. The purchases are a way of pumping newly printed money into the economy to raise lending to companies, inflation and growth.
Critics say the steps deprive savers of interest earnings and remove pressure on shakier eurozone governments to shape up their finances. Draghi counters that 11 million new jobs have been created in the currency union thanks to the central bank’s stimulus policies since the Great Recession.