ECB’s Mersch Sees ‘Long Road Ahead’ for Euro-Area Economy

European Central Bank council member Yves Mersch said the euro area has much work to do in addressing the causes of its debt crisis and governments must step up fiscal coordination in the face of “weak growth.”

“Since the beginning of the year, signs of stabilization have appeared along with a slow and progressive return of market confidence,” Mersch wrote in the annual report of the Luxembourg Central Bank, which he heads. “The measures taken by euro-zone authorities and member states are beginning to produce results, even if there is a long road ahead.”

The remarks underline the difficulties faced by countries such as Italy and Spain as they seek to loosen labor laws to spur growth and slash budget deficits. The annual report noted that the euro-area economy may shrink 0.3 percent this year, citing a European Commission forecast rather than the ECB’s prediction of a 0.1 percent contraction.

European finance ministers agreed last week in Copenhagen to increase the size of the region’s emergency lending capability to 800 billion euros ($1.1 trillion). The funds are intended to help governments as the Frankfurt-based ECB provides banks with emergency liquidity through long-term loans.

“The non-conventional measures are by definition temporary,” Mersch wrote. “The objective is to reestablish market confidence as well as optimal transmission of monetary policy and the financing of the economy.”

Mersch, a candidate to join the ECB’s Executive Board when the term of Spain’s Jose Manuel Gonzalez-Paramo ends next month, declined to comment about his future. “I have a mandate until 2016 and I don’t have any other information,” he said.

Finance ministers last week delayed a decision on the appointment until mid April. In his written introduction to the annual report, Mersch thanked his colleagues at the Luxembourg Central Bank.

“I must express my profound recognition to everyone who, over the years, has assisted me” and advised me in my mission at the Luxembourg Central Bank, he wrote.

To contact the reporter on this story: Mark Deen in Paris at markdeen@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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