Federal Reserve Vice Chairman Stanley Fischer said Europe’s Economic and Monetary Union “will survive this crisis” and that monetary policy would benefit from increased government spending.
“The best way to deal with future crises is to strengthen the economic framework in which they will be confronted,” Fischer said in a speech Thursday in Sintra, Portugal. That means making sure member nations “run responsible financial and budgetary policies,” he said.
“And it means the continuation of a courageous and effective monetary policy, and courageous and effective regulation and supervision of the financial system -- albeit a monetary policy that could do even better if accompanied by an expansionary fiscal policy,” Fischer, the former governor of the Bank of Israel, told a European Central Bank forum.
Fischer, 71, joined the Fed board a year ago. He didn’t mention his outlook for the U.S. economy or Fed monetary policy in the text of his remarks.
The No. 2 Fed policy maker after Chair Janet Yellen said the European Union still faces “the possibilities of major difficulties associated with the current Greek crisis and, later, with a potential British exit.” He also spoke of what policy makers can learn from responses to past crises.
“Each crisis spurred policy makers to take steps that they might not otherwise have taken at that time, and the end result of those steps has been a more unified European monetary union,” Fischer said. “Successive crises have not deterred policymakers from the goal of economic integration, but rather seemed to strengthen their belief in the need for it -- and that integration is stronger today than it ever was in the past.”
ECB President Mario Draghi and his colleagues in March began large-scale asset purchases that they expect will reach 1.1 trillion euros through September 2016. Euro-area consumer prices ended a four-month streak of losses in April, backing Draghi’s claim that QE is already starting to have an impact.
Fischer said Draghi largely erased skepticism about the monetary union’s viability by saying “the ECB is ready to do whatever it takes to preserve the euro” in a July 2012 speech. Asset purchases also boosted faith in the ECB, Fischer said.
“With one decision -- the decision to implement QE -- it became clear that the ECB has the capacity both to decide to implement monetary policy at the zero lower bound -- indeed below the zero lower bound - -and to succeed in implementing that policy,” said Fischer.