FRANKFURT (MNI) – The European Central Bank’s non-standard
liquidity measures have helped to improve heterogeneity across the
Eurozone, but their effects are temporary and cannot replace the need
for broader structural reforms, ECB Board member Peter Praet said

“Measures adopted by the ECB have contributed to greater
homogeneity in the pass-through of policy rates to the economy, with a
view to maintaining price stability,” Praet said in prepared remarks to
the ECB Watchers’ conference in Frankfurt.

The liquidity measures have also helped to improve the transmission
of ECB monetary policy, he said.

“Our policies have helped to reduce heterogeneity in financial
conditions thereby ensuring smoother transmission of monetary policy
across the euro area,” the ECB’s chief economist said.

Praet stressed that the ECB’s liquidity operations “can only be
regarded as temporary support, as the underlying structural problems and
weaknesses require a truly structural response completing the overall
architecture of EMU.”

He added: “Monetary policy cannot provide a lasting solution to the
underlying problems causing this persistent heterogeneity.”

Praet said the result of those shortcomings, exposed by the
sovereign debt crisis, was that “economic conditions have, today become
increasingly heterogenous.”

But Praet argued that this could be overcome: “Let me state very
clearly up front that this does not imply that a common currency cannot
succeed in the euro area.”

Praet said additional reforms that are required include “a more
integrated framework for bank supervision, resolution and deposit
insurance, as well as far more extensive coordination of government
policies affecting competitiveness.”

He said some of the macroeconomic imbalances in the Eurozone “have
begun to adjust. Competitiveness has improved in countries where labour
costs used to persistently exceed the euro area average.”

“That being said, such adjustment has remained too limited,” Praet
said, adding that “sizeable imbalances persist.”

Praet rejected fears that the ECB’s policies could be fuelling
asset price bubbles in parts of the Eurozone.

“These concerns are not warranted at the current juncture. Thus
far, only a moderate recovery has been seen in asset prices,” while
leading housing price indicators “have remained subdued.” The ECB will
“continue to monitor asset price developments,” he said.

— Frankfurt bureau: +49 69 720 142; email: —

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