19 Feb 2015
EZ economy cannot survive on monetary easing alone - RBS
FXStreet (Guatemala) - Analysts at RBS explained that related to the concerns about the effectiveness of asset purchases, the Accounts also featured the recurrence of concerns around moral hazard and the belief that monetary policy cannot raise the long-term growth potential of the Eurozone economy on which so much depends.
Key Quotes:
"Neither statement is controversial; nor is it surprising that those views featured in the Accounts."
"It was noted that monetary policy action, particularly in the area of sovereign bond purchases, could not be seen in isolation from the actions of other policy actors. Possible moral hazard implications for euro area governments could weaken their incentives for structural reforms and fiscal consolidation. Hence, there was broad agreement that the effectiveness of sovereign bond purchases would also depend on the appropriate action on the part of other policy-makers in the euro area. Growth-friendly fiscal policies, while fully respecting existing commitments, were seen as an effective instrument to support economic growth in the euro area at the current juncture. Moreover, the determined implementation of structural reforms, together with actions to improve the business environment, would increase investment activity, boost job creation and increase productivity growth. This would not only raise the euro area’s long-term growth prospects, but would also reinforce the positive effects of any monetary policy measures on economic growth and inflation developments."
"However, the implication that the effectiveness of unconventional monetary instruments in achieving price stability is constrained by the actions of other policymakers is more controversial in our eyes – surely one would argue that if other policymakers fail to deliver on growth friendly reforms then the central bank will simply have to factor in greater headwinds and do more."
Key Quotes:
"Neither statement is controversial; nor is it surprising that those views featured in the Accounts."
"It was noted that monetary policy action, particularly in the area of sovereign bond purchases, could not be seen in isolation from the actions of other policy actors. Possible moral hazard implications for euro area governments could weaken their incentives for structural reforms and fiscal consolidation. Hence, there was broad agreement that the effectiveness of sovereign bond purchases would also depend on the appropriate action on the part of other policy-makers in the euro area. Growth-friendly fiscal policies, while fully respecting existing commitments, were seen as an effective instrument to support economic growth in the euro area at the current juncture. Moreover, the determined implementation of structural reforms, together with actions to improve the business environment, would increase investment activity, boost job creation and increase productivity growth. This would not only raise the euro area’s long-term growth prospects, but would also reinforce the positive effects of any monetary policy measures on economic growth and inflation developments."
"However, the implication that the effectiveness of unconventional monetary instruments in achieving price stability is constrained by the actions of other policymakers is more controversial in our eyes – surely one would argue that if other policymakers fail to deliver on growth friendly reforms then the central bank will simply have to factor in greater headwinds and do more."