Fiscal spend in richer euro countries would help periphery: ECB paper
- Top 10 News for 12/2: Crude Rips on OPEC Cut; Starbucks' Schultz Steps Down; Nonfarm Payrolls Flat in Nov.
- Unemployment Rate Drops to 4.6%
- Bond yields slip on U.S. jobs data, euro steady before Italy vote
- Alibaba (BABA) Founder Jack Ma Discuss Plans to Retire; 'I Don't Want to Die at the Office'
- Starbucks Coffee (SBUX) CEO Howard Schultz to Step Down, Appointed Executive Chairman; Kevin Johnson New CEO
People walk through the Mall of Berlin shopping centre during its opening night in Berlin, September 24, 2014. REUTERS/Thomas Peter/File Photo
Get instant alerts when news breaks on your stocks. Claim your 2-week free trial to StreetInsider Premium here.
FRANKFURT (Reuters) - Fiscal spending in "core" euro zone countries, such as Germany, would help weaker economies in the region's periphery at a time when European Central Bank rates are stuck at zero, an ECB research paper showed on Thursday.
The authors argue for fiscal stimulus in the euro zone's core to counter the effects of "structural reforms", which temporarily reduce prices and wages, in peripheral countries, such as Greece, Portugal and Spain.
The paper provides further ammunition to ECB President Mario Draghi, who has long been calling for countries to use the "fiscal space" they have under European rules and raise the pace of reform.
His plea has fallen on deaf ears so far, with Germany, which is sitting on its biggest budget surplus since records began with reunification in 1990, reluctant to loosen the purse strings.
The study found that spending in core countries, which include Germany, France and the Netherlands, would boost euro zone inflation, thereby lowering the cost of borrowing for firms and households in real terms.
If ECB interest rates remained at zero despite the inflation rise, this would then stimulate domestic demand in peripheral economies as well as their exports to core countries, according to the three authors.
"A fiscal expansion in the core may benefit the periphery provided the monetary authority ... does not react to the resulting inflationary pressure," Bank of Spain economists Óscar Arce, Samuel Hurtado and Carlos Thomas - part of an EU task force working on low inflation - wrote in the paper.
(Reporting By Francesco Canepa; Editing by Richard Balmforth)
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- Greek PM, France's Hollande discuss Greek bailout review, Cyprus
- Chinese insurers have significant risk management deficiencies: watchdog
- Iran's supreme court upholds tycoon's death sentence for graft
Create E-mail Alert Related CategoriesReuters
Related EntitiesEuropean Central Bank
Sign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!