‘ECB policies rely on reforms’

German deputy finance minister Steffen Kampeter urged countries such as France and Italy to live up to their policy commitments to boost the effectiveness of the European Central Bank’s monetary policy steps.

The ability of economies to absorb monetary stimulus and the benefits of economic-growth programmes rests upon fiscal stability, Mr Kampeter said in a speech in Dusseldorf.

That combination has yielded “moderate” improvements in countries that sought help from EU fiscal backstops at the height of the financial crisis, he said.

“If I look at developments in Greece, but especially in Portugal, Spain, and Ireland, consolidation and the reduction of budget deficits was the precondition for current and previous programme countries becoming the fastest-growing economies in Europe,” Mr Kampeter said.

“At present, the sights are not so much on programme countries, but on other European countries.”

France last week cut its growth forecast and said the budget deficit will increase for the first time in five years as it contends with record unemployment and an economy that’s barely growing. Italy is in its third recession since 2008.

French finance minister Michel Sapin said last week that the budget deficit will reach 4.4% of gross domestic product instead of the 3.8% agreed earlier with the European Commission. France was already granted two delays to comply with the EU’s budget deficit limit of 3% of GDP.

“Monetary policy can only become effective to the degree that we do our jobs,” Mr Kampeter said.

“Monetary policy is no substitute for failing to act, for the ability to carry out reforms, in Germany or elsewhere in the eurozone.”

While flexibility in applying budget rules is built into European finance policy, that leeway is covered by a clear legal framework and monitored closely especially by countries that undertook policy changes under aid programmes, Mr Kampeter said.

“Rules apply not only in Spain, Portugal, Greece, and Ireland, but in the entire eurozone and we will underline this point in discussions,” he said.