The ECB "calls for the urgent implementation of structural and bold ambitious reforms" in the Eurozone to "accompany the rebalancing of public finances". This is what we read in the monthly bulletin of Frankfurt. “Going hand in hand, fiscal consolidation and structural reforms would strengthen confidence, growth prospects and job creation – continues the bulletin -. Key reforms should be implemented swiftly to help euro area countries increase competitiveness, promote the flexibility of their economies and improve longer-term growth potential”.
For Eurozone countries”the economic outlook remains subject to high uncertainty and considerable downside risks. In these circumstances, cost, wage and price pressures in the euro area are expected to remain subdued and inflation rates are expected to follow a path consistent with price stability over the policy-relevant horizon. However “according to some indicators based on recent business surveys there are tentative signs of a stabilization of activity at modest levels".
As for theliquidity offer, “the allotment arrangements in Eurosystem refinancing operations will continue to support euro area banks and, therefore, lending to the real economy. The extensive recourse to the first three-year refinancing operation indicates that the unconventional monetary policy measures of the ECB make a significant contribution to improving the situation of banks on the funding side, with positive spillovers for financing conditions and the climate trust".
The Frankfurt institute therefore underlines that "at the present stage a number of factors appear to be holding back the underlying dynamics of growth in the euro area, including the moderate expansion of global demand and the low level of business and consumer confidence in the domestic demand will probably be "weakened by the ongoing tensions in the sovereign debt markets of the euro area - continues the bulletin -, as well as by the process of balance sheet consolidation in the financial and non-financial sectors. At the same time, the Governing Council continues to expect that in the course of 2012 the economic activity of the euro area will record a recovery, albeit very gradual, supported by the trend in global demand, by very low short-term interest rates and from all measures undertaken to support the functioning of the financial sector".
Finally inflation, which "will probably remain above 2% for several months to come, before falling below that value", while "at the same time the underlying pace of monetary expansion remains moderate". For the ECB, it remains "essential that monetary policy preserves price stability over the medium term, ensuring the solid anchoring of inflation expectations in the euro area, in line with the Governing Council's objective of keeping inflation rates at levels below but close to 2% in the medium term”.
