PARIS – The topics chosen by the European Central Bank for its annual forum in Sintra, Portugal, at the end of May were not deflation, quantitative easing, or financial stability. They were unemployment, productivity, and pro-growth reforms. ECB President Mario Draghi explained why in his introductory speech: The eurozone lacks both growth momentum and resilience to adverse shocks.
Draghi is undoubtedly right. The European Commission now expects growth in the eurozone to reach 1.5% in 2015 and 1.9% in 2016. That certainly looks good in comparison to the near-stagnation of recent years. But, given the combination of massive monetary support, a now-neutral fiscal stance, a steep fall in oil prices, and a depreciated euro, it is the least we could expect, and it will bring per capita GDP back only to its 2008 level. The fact that leaders and pundits are hailing this brighter outlook indicates just how diminished our expectations have become.
Until recently, fiscal austerity and the euro crisis could be blamed for poor economic performance. Not anymore. Although growth may exceed the Commission’s forecast, there are reasons to be concerned about the eurozone’s growth potential.
In order to strengthen that potential, central bankers can only advocate economic reforms; it is governments that are responsible for adopting them. And critics point out that repeated exhortations could prove counterproductive. After all, central banks are quick to rebut monetary-policy suggestions from governments in the name of independence. Why should governments behave differently?