European Central Bank Executive Board member Benoit Coeure said that the fiscal policy should be used to support growth in a ‘smart’ way, that is, by incentivising investment.
At the Global Research Forum on International Macroeconomics and Finance in Washington D.C., Coeure said in countries where there is no fiscal space one cannot claim to invent it and jeopardise common rules. In such a situation, the effectiveness of demand policies should be boosted in each euro area country.
“While monetary policy can and should be used in full, it is clear that it cannot bear the entire burden of stimulating growth in the region in a context of weak aggregate demand conditions,” Coeure said.
Coeure said he belongs to the ‘sceptical’ school and see limited room and advantages for formal monetary policy coordination at a global level.
Further, he said, “We are now at a stage, however, where all countries need to boost output, and here reforms aimed at internal devaluation cannot be the answer.”
“I see it as imperative that we now shift our focus towards a different composition of reforms, comprising in particular those reforms that will raise investment demand,” he added.
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