Eurozone Needs Strategy for Reviving Growth, Says IMF's Shafik

  • Nominal fiscal targets for 2013 broadly appropriate but should be kept under review in light of growth
  • Decisive steps toward more complete financial integration are needed
  • Contagion in financial markets risks undermining public support for reform effort
  • An effective strategy would be based on macroeconomic policies to support demand in the near term, and further progress in structural reforms to raise long-term growth and complete the process of European integration.

    “Overall, fiscal adjustment plans for this year are broadly appropriate in Europe. In a few euro area countries, however, the nominal fiscal targets for 2013 agreed before the current slowdown in growth may prove too procyclical and may need to be adjusted or at least expressed in structural terms,” Deputy Managing Director Nemat Shafik said May 31 at the 2012 Brussels Economic Forum organized by the European Commission.

    With price pressures expected to decline, the European Central Bank could also consider further expansionary measures, Shafik said.

    Over the medium term, countries will need to reform their labor and product markets and find new ways to encourage investment to raise the growth potential of their economies and improve competitiveness. “Unfortunately, there is no magic bullet to spur growth and job creation. Crisis-hit countries in Europe will only be able to revitalize their economies by selling more goods abroad and creating new jobs in the private sector,” she said.

    Shafik at Brussels forum: For Europe’s governments, explaining rationale of reforms to public now more important than ever (photo: Frederic Guerdin/Scorpix)

    At the regional level, European leaders should aim to complete the architecture of monetary union. In particular, a banking union that would include a bank-deposit guarantee and a bank resolution framework with adequate common backstops, and common supervision and regulation, would be a welcome step,” she said.

    Call for action

    Olli Rehn, Vice-President of the European Commission, said that more action was needed if policymakers wanted to avoid a disintegration of the eurozone. “We need both a genuine stability culture in the eurozone and its member states and a much upgraded common capacity to contain financial contagion and reduce the borrowing costs for its members,” he said.

    One of the countries currently being affected by contagion through higher spreads on its national debt is Italy, where Prime Minister Mario Monti has...

    To continue reading

    Request your trial

    VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT