Monetary policymakers in the eurozone have become increasingly frustrated with politicians’ failure to come up with the stimulus needed to lift the single currency area’s recovery.

While the bloc’s recovery here has proven resilient to the political shocks in the second half of last year, question marks remain about what will happen to the region’s economy — and the currency area itself — if governments neglect much-needed, but often politically unpalatable structural reforms.

The European Central Bank’s governing council wants to push lawmakers to use the current period of favourable credit conditions to carry out structural reforms on their economies, accounts of its January 19 vote show.

“A strong call” was needed to prod governments “to engage decisively in structural reforms to boost investment, reduce structural unemployment and increase potential output.”

The fear is that if the economy fails to grow at a faster rate, unemployment in more vulnerable parts of the continent will stay stuck in double digits, creating the sort of environment in which anti-EU populism tends to thrive.

The accounts also suggest the central bank is unlikely to change its plans to buy €780bn-worth of bonds this year as part of its landmark quantitative easing programme. The council “was seen as well advised to remain patient and maintain a steady hand” at a time of heightened uncertainty caused by geopolitical events.

The accounts added:

At the same time, the point was made that the window of opportunity provided by a period of favourable monetary and financial conditions needed to be used by other policy areas to bolster sustained growth, namely by speeding up structural reforms.

The council was untroubled by the recent rise in inflation, which has seen the headline figure for price pressures rise close to the ECB’s target of just under 2 per cent for the first time since early 2013.

The rise was triggered by the higher cost of oil and was not supported by broader price pressures. There was, the minutes said, “broad agreement to look through recent upturns in headline inflation driven by energy prices, while carefully monitoring potential indirect and second-round effects.”

The council also signalled it would try to avoid buying more expensive eurozone bonds wherever possible, even if that meant deviating slightly from rules which require government bond purchases to be in line with the size of a member state’s economy.

That rule has meant the Bundesbank has had to start buying bonds with yields below the ECB’s deposit rate of minus 0.4 per cent — in effect meaning that the Bundesbank will make a loss on those purchases.

The minutes said there was “some room for a trade-off between relative deviations from the capital key across jurisdictions and limiting the extent of purchase below the DFR [deposit facility rate].” They also confirmed that bonds had been bought below the deposit floor, starting on January 16.

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