Share more or face stagnation, ECB tells euro zone countries

October 7, 2016 8:21 AM EDT

European Central Bank (ECB) President Mario Draghi attends a meeting with German lawmakers in Berlin, Germany, September 28, 2016. REUTERS/Axel Schmidt


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By Balazs Koranyi and Francesco Canepa

WASHINGTON/FRANKFURT (Reuters) - Top European Central Bank officials pledged on Friday to keep their stimulus taps open while calling on euro zone governments to pool more of their money and power if they want the euro zone to avoid economic stagnation and be fairer for its citizens.

Aversion to the European project has been on the rise since the financial crisis left millions unemployed, particularly in debt-laden countries such as Greece and Italy.

The ECB has spent over a trillion dollars buying bonds in an effort to boost inflation, a key gauge of economic health. But price growth remains just above zero and is not expected to reach the ECB target of almost 2 percent for at least two years.

ECB President Mario Draghi reaffirmed the bank's commitment to maintain its current policy of negative interest rates and aggressive bond purchases until euro zone inflation moves back towards its target.

"The ECB will continue to play its part by delivering on its mandate," Draghi told an International Monetary Fund committee.

But he also said governments should do more to support the economy, with growth-boosting reforms and fiscal spending accompanying the ECB’s ultra-easy monetary policy.

"A balanced three-pronged policy approach with a particular focus on structural reforms must be pursued with determination in order to lift long-term growth prospects, dispel feelings of economic insecurity and lay the foundations for a better and fairer life for citizens everywhere," he said.

Speaking shortly after at a separate Washington event, ECB chief economist Peter Praet said the euro zone needed to become a true fiscal and economic union if its economy was to avoid stagnation.

With its aging population and low productivity growth, the euro zone is seen by many economists as destined for structurally low growth.

Yet Praet argued creating an economic union would help poorer euro zone countries to catch up and a sharing of fiscal resources would provide insurance against large shocks.

"In this sense Member States collectively control the destiny of the euro area and through well-aligned policies can make sure that 'secular stagnation' will not take hold in the euro area," Praet said.

($1 = 0.8981 euros)

(Reporting by Balazs Koranyi; Writing by Francesco Canepa in Frankfurt; Editing by Larry King)



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