BRUSSELS (MNI) – Austerity measures could dampen short term growth
in the 16 Eurozone member states, European Central Bank Vice-President
Vitor Constancio said on Thursday.
“We take into consideration the effects of fiscal measures to
reduce deficits in all countries,” Constancio said. “We have to
distinguish between the short-term and long-term effects. It is in a way
unavoidable that those measures can have a destructive effect on the
economy.”
But he said if nothing was done to reduce debt and deficit levels,
the situation “would have been much harsher.”
“Second, if we take the medium and long term view, we have also to
consider that if economic agents can feel confident that, in the medium
term, the public financial situation is better, improved, [that] will
have a positive effect on expectations and can help to create conditions
for faster growth,” Constancio said.
Eurozone countries are under pressure to cut their debt and deficit
levels because of market turmoil over fiscal policy that is pushing the
euro sharply lower. Greece, the worst offender, was offered a E110
billion life line after it revealed its budget deficit was more than
four times the EU’s stipulated 3% limit.
Constancio was speaking at a press conference after the European
Central Bank’s Governing Council decided at its monthly monetary policy
meeting to leave its key interest rate unchanged at 1.0%. The rate has
been at this level since May 7, 2009.
At the same time, the central bank announced it would conduct three
new 3-month liquidity providing operations on a full allotment, fixed
rate basis. They will be held on July 29, August 25 and September 29.
This is in addition to one already scheduled for June 30.
The next rate-setting Governing Council meeting will be held July
8.
–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com
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