Monetary union is being wrongly scapegoated by European populists for the continent’s economic ills, the chief economist of the European Central Bank has warned ahead of the 60th anniversary of the founding of the EU.
Amid calls for eurozone exits by France’s Marine Le Pen and parts of the Five Star movement in Italy, Peter Praet, an executive board member of the ECB, said the narrative that the euro was the cause of low growth and weak economies was a “deception”.
Mr Praet told Italy’s Il Sole 24 Ore that exchange rate devaluations by countries seen before the start of the single currency in 1999 provided only “short lived breathing space” for economies like Italy:
The nostalgic alternative that everything will be alright just by returning to the lira amounts to fooling the people. The cost of a regime change would be huge and the poor would be the ones that suffer the most.
Considered one of the ECB’s most dovish rate-setters, the chief economist said inflationary dynamics were still not strong enough for the ECB to remove its record levels of monetary support through low rates and asset purchases.
In particular, weak wage dynamics suggest there is more spare capacity in the 19-country bloc than economists may have first thought, said Mr Praet:
We have to be patient [on inflation]. Inflation is higher because of oil, which, by the way, has fallen by 10 per cent recently, confirming the volatility and that we are right in looking through short-term, transient movements.
Amid market speculation that the ECB will begin to raise its record low interest rates before it winds down its asset purchases, Mr Praet added:
The Governing Council has not signaled a change in the monetary policy stance, including its forward guidance.
Our forward guidance has served us well and led to financial conditions that are appropriate. We reiterated it. We had no discussion on sequencing in the Governing Council.
His comments come on the eve of the celebration of the 60th anniversary of the signing of the EU’s founding Treaty of Rome.