European Central Bank Executive Board Member Joerg Asmussen said fiscal consolidation by euro-area countries must continue while the bank keeps interest rates low for as long as necessary.
“We need to continue to focus on sound fiscal policies,” Asmussen said at a panel discussion in Vilnius that included International Monetary Fund Managing Director Christine Lagarde. “The debate on austerity versus growth is a completely wrong debate. We cannot leave the young generation with the double burden that at the one hand they have no job and on the other hand they have to pay for the debt level they inherit.”
Demonstrators from Greece to Belgium have protested this year against government spending cuts, while bond yields have risen since May in euro-area periphery countries amid concern austerity fatigue will derail economic reforms. ECB President Mario Draghi this month gave unprecedented guidance that interest rates will be kept low for an extended period of time.
“More needs to be done” to create jobs, Lagarde said during the panel discussion, citing Germany’s apprenticeship programs as an example. On fiscal policy, “we believe some countries are doing enough and should keep doing so, we also believe there are a few countries which are doing a little too much. There is no question that monetary policy cannot be a substitute for everything else that needs to be done.”
Asmussen reiterated that interest rates will stay low for as long as needed and said the ECB’s Outright Monetary Transactions program to buy the bonds of struggling governments is “absolutely still valid.” The OMT, which hasn’t yet been used, requires countries to agree to conditions imposed by the European Stability Mechanism and would need the involvement of the IMF, he said.