Sat, Jan 24, 2015 - Page 15 News List

Onus on eurozone nations to lift economies

BOND-BUYING PROGRAM:The measure offers relief to some member states, but national governments need to step up efforts to spur growth, the ECB said

NY Times News Service, DAVOS, Switzerland

Facebook Inc chief operating officer Sheryl Sandberg, center, and Google Inc chairman Eric Schmidt, right, listen as Jim Hagemann Snabe, board member of the World Economic Forum, speaks on Thursday during a session on the second day of the World Economic Forum in Davos, Switzerland.

Photo: Bloomberg

As the European Central Bank (ECB) deploys its most powerful economic weapon, the onus for growth now lies with the 19 individual countries in the eurozone, a fractious and highly political group.

The central bank’s plan calls for buying 60 billion euros (US$69 billion) of government bonds and other debt each month. It is the kind of aggressive action that leaders in weaker eurozone countries have long wanted and that Germany has tried to block.

SYRIZA, the leftist party expected to win the Greek elections this weekend, on Thursday called the bond purchase program “an important decision which the next Greek government will use for the benefit of the country.”

The ECB, though, is stretching the limits of its power with the bond-buying program. And if it is not enough to address what ails Europe, any further stimulus efforts would fall to national leaders. Such steps would involve the sort of extensive government spending that many countries, including Germany, have been reluctant to pursue, hewing, instead, to a philosophy of budget discipline that has acquired the shorthand label of austerity.

German Chancellor Angela Merkel warned her peers not to waste the breathing space given them by the central bank.

“We should not become diverted from the fact that we as politicians need to put a framework for recovery in place,” Merkel said at the World Economic Forum in Davos, minutes before the ECB announced its decision in Frankfurt, Germany.

The ECB’s plan, in part, is aimed at easing the burden on national governments by pumping at least at least 1.1 trillion euros into the system. The increased demand from the ECB should raise bond prices and push down yields. If the tactic, known as quantitative easing (QE), works, it would ripple through financial markets, pulling down the interest rates on other types of debt, like business loans.

Even if the ECB action does not reach Italian or Portuguese borrowers, it could still help.

Italian shoemaker Geox president Mario Moretti Polegato said quantitative easing could help restore a sense of optimism. Many smaller Italian companies could get credit if they wanted it, he said, but they are too pessimistic about their business prospects to invest.

“The ECB move is not something that will replace what Italy needs to do,” Polegato said in an interview at Davos, but added: “It’s a first step.”

Any relief that national leaders feel might be clouded by the realization that there is probably not much more the ECB and its president, Mario Draghi, can do to stimulate the region’s economy.

On Thursday, Draghi again emphasized that national governments need to step up their efforts to rekindle growth.

“It is crucial that structural reforms be implemented swiftly, credibly and effectively, as this will not only increase the future sustainable growth of the euro area, but will also raise expectation of higher incomes and encourage firms to increase investment today and bring forward economic recovery,” Draghi said in a statement. “Fiscal policies should support the economic recovery.”

Quantitative-easing programs have helped revive the economies of the US and Britain, but the eurozone is not a single country. It is largely a matter of conjecture whether pushing down the interest rates on government debt and some other kinds of bonds in Spain, for example, would make it easier for a hard-pressed small business owner in Italy to get a loan.

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