ECB's Praet Says Populist Narrative Against Euro Deceptive
March 24 2017 - 04:53AM
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Populist narrative that things were better before the euro is a
deception and the single currency and EU are made scapegoats,
European Central Bank Executive Board member Peter Praet said.
"What I do worry about is the populist narrative that things
were better before the euro. This is a deception!," Praet, who is
the chief economist of the ECB, said in an interview to the Italian
newspaper Il Sole 24 Ore, published Friday.
Some key Eurozone countries have general elections this year and
populist parties, some of whom seek a return to national
currencies, are gaining favor.
"What I think opinion polls show is a disaffection with the
general situation, of which the euro is made a scapegoat," Praet
said.
"The nostalgic alternative that everything will be alright just
by returning to the lira amounts to fooling the people."
The cost of a regime change would be huge and the poor would be
the ones that suffer the most, he added.
The ECB would continue to be a source of stability in a volatile
environment, but the bank's mandate is limited as structural
policies are the responsibility of governments, Praet pointed
out.
Regarding monetary policy, Praet said talks of an exit from
stimulus are "premature".
"We are more confident on growth," the policymaker said. "But
the economic outlook is still conditional on maintaining a
substantial degree of monetary accommodation."
The economist also noted that there was no sign of a pickup in
underlying inflation, which could occur when the output gap closes.
Wage pressures remain subdued and there is more slack in the labor
markets than unemployment rates show, Praet said, urging
patience.
The ECB's policy stance remains appropriate and measures are
working, the policymaker said.
He dismissed market interpretation of any preparation for an
exit saying that "against the backdrop of better economic
conditions, and after such a long period of monetary policy
accommodation, markets are very sensitive to any signal that may
suggest a change in the policy stance".
Praet also stressed that the Governing Council has not signaled
a change in the policy stance, including its forward guidance.
"We reiterated it," he said. "We had no discussion on sequencing
in the Governing Council."
This month, Bank of Italy Governor Ignazio Visco said that the
ECB may shorten the time it takes to raise interest rates after
exiting quantitative easing.
Quizzed on the same, Praet said, "We do not give a date for when
that will be."
"The Governing Council will decide in due time how long the
"well past" will be," he added.
On the protectionist tendencies of new administrations,
especially in the U.S., Praet said no concrete action has been
observed yet, but the fact that the basis of multilateralism is
questioned is one of the biggest worries.
In a separate interview with the German newspaper VDI
Nachrichten, also published on Friday, Praet reiterated his views
on populism.
Problems and grievances in societies are being transformed into
the expression of a general rejection, he noted.
People voting for populists must know that although they would
live in smaller, easier-to-control markets, it would also mean much
higher prices for consumers and reduced prosperity, the ECB
policymaker cautioned.
"Basically, as I see it, people vote for populists in order to
protest, but not to reject the EU as such," he said.
On Brexit, Praet said the event does not pose any risk to
financial stability as the financial crisis in the recent past gave
lessons on how to handle dangerous situations.
"What concerns me are the massive costs that the withdrawal will
cause for the EU27 and, above all, for the UK," he added.
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