Jean-Claude Juncker warns economic crisis is not yet over

European Commission president Jean-Claude Juncker warned eurozone governments against relying too much on loose monetary policy for economic growth, saying they must quickly strengthen public finances and bolster investment to emerge from the debt crisis.

“Our economic recovery is still fragile,” Mr Juncker told the European Parliament yesterday in Strasbourg.

“From my perspective, the crisis is not over and there should be no complacency.

"Even if we are helped by the action of the European Central Bank, we have only a short window of opportunity to press ahead with our agenda for reforms.”

Brussels last month cut its forecasts for eurozone growth and inflation next year, citing more challenging global conditions and fading impetus from lower oil prices and a weaker euro.

GDP in the 19-state eurozone will expand 1.8% in 2016, down from a previous projection of 1.9%, while inflation will be 1% rather than a previously predicted 1.5%, according to the commission.

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Earlier this month, ECB president Mario Draghi announced a deposit-rate cut and an extension to quantitative easing after he and colleagues spent weeks signalling mounting concern that inflation expectations were at risk of becoming uncoupled.

Mr Juncker was joined in Tuesday’s EU Parliament debate by Dutch Finance Minister Jeroen Dijsselbloem, who also warned about over-reliance on lax monetary policy.

“The gradual economic recovery is ongoing and is relatively broad-based across member states,” said Mr Dijsselbloem, who also heads the group of eurozone finance chiefs.

“However, since we will not be able to count on several supportive factors such as low oil prices and a very accommodative monetary policy forever, we need to ensure that the recovery becomes self-sustained, in particular given the weaker external environment.”

The eurozone’s ability to generate growth from within depends partly on an upturn in household credit, a fall in the household savings rate and an increase in housing investment, according to Patrick Artus, chief economist at French investment bank Natixis.

Growth also requires an increase in job creation and a more vigorous pick-up in corporate investment, Mr Artus said.

He said excessive public and private debt, along with the need to keep deleveraging, is among the prime reasons that the eurozone economy lacks vigour.