ECB’s Visco Says Defense of Euro Needs Action From MembersAndrew Frye and Alessandra Migliaccio
European Central Bank Governing Council member Ignazio Visco urged nations to control debt and stimulate growth as a compliment to monetary policy in a common effort to keep the euro stable.
“Every country must do its part,” Visco, also governor of the Bank of Italy, said in the text of speech delivered today in Rome at the central bank’s annual meeting. “Monetary policy can guarantee stability only if the area’s economic fundamentals and institutional architecture are consistent with that objective.”
Visco is calling for reforms and debt management as the 17-nation single-currency area struggles to bring down unemployment and foster economic growth. Euro instability, which Visco associates with what he calls “redenomination risk,” has been curbed by the ECB’s Outright Monetary Transactions program, announced last year, to purchase debt from countries that request assistance.
“The measures taken, in particular the announcement of the outright monetary transactions, are conducive to the national and European reforms which alone can eradicate redenomination risk,” Visco said.
Italy has suffered amid the European financial crisis, and the central banker said political leaders must do more to create the conditions for growth. Italy, Europe’s fourth-biggest economy, is poised to contract 1.8 percent this year, the Organization for Economic Cooperation and Development said this week. Unemployment rose in April to a 36-year high, according to a report from the national statistics office today.
The jobless data and Visco’s speech adds urgency to new Prime Minister Enrico Letta’s “top priority” of promoting employment. Letta’s predecessor, Mario Monti, focused his 17-month administration on curbing Italy’s budget deficit and shielding the country from bond-market speculation. That legacy of budget discipline must be preserved as the country focuses on growth and considers tax cuts, Visco said.
“In Italy more than in other countries, the cyclical ups and downs are superimposed on serious structural weaknesses,” Visco said. “The adjustment required, and put off for so long, is historic in scope.”
Visco said ECB interest rate cuts have helped countries that have been hit hardest by economic tensions. The governing council “stands ready to intervene again” in ways that are consistent with the monetary policy stance, he said.
Italy’s longest recession in more than two decades is being perpetuated by weak household demand, the OECD said. The April jobless rate of 12 percent, which came in higher than the 11.6 percent median of seven estimates in a Bloomberg News survey, was the most since the data series began in the first quarter of 1977, statistics office Istat said. The March reading was revised up today to 11.9 percent from an initial 11.5 percent.
“The recession is deeply undercutting potential output and threatens to erode social cohesion,” Visco said. “Reductions in taxation, which are necessary in the medium term and which could be planned now, will have to be selective, giving priority to labour and production.”