The European Central Bank judged yesterday (10 April) that it had a successful 2016, claiming in its annual report that it had nurtured economic recovery and that it was the eurozone’s most successful post-crisis year.
“Though the year began shrouded in economic uncertainty, it ended with the economy on its firmest footing since the crisis,” ECB President Mario Draghi wrote in a foreword.
In March last year, the ECB responded to alarmingly low inflation by boosting its massive bond-buying scheme, lowering interest rates and extending cheap loans to banks.
The ECB’s moves were designed to pump cash through the financial system and into the real economy, making it easier for businesses and households to borrow for spending and investment — powering growth and ratcheting up inflation towards the ECB’s target of just below 2%.
By December, the eurozone economy looked healthy enough for the Frankfurt institution to scale back its bond-buying from the €80 billion euros per month set in March to its previous level of €60 billion.
“This reflected the success of our actions earlier in the year: growing confidence in the euro area economy and disappearing deflation risks,” Draghi judged.
But the central bank sees its task as far from done.
The 19-nation eurozone faces political risk at home from elections in powerful members France, Germany and maybe Italy, while weak global growth and political uncertainty sap overseas demand for the region’s products.
Meanwhile, although inflation briefly spiked past its target in February thanks to higher oil prices, it fell back in March and is far from the “self-sustaining” level the ECB strives to reach as growth in prices and wages remains sluggish.
For now, Draghi and his colleagues in the bank’s governing council believe the economic recovery is still dependent on their massive support.
The report repeats familiar calls on governments to step up reforms, especially loosening labour laws, and to redirect spending to more growth-friendly areas.
And it takes aim at the European Commission, arguing that “a more forceful application of the fiscal rules would have been welcome” in cases such as Brussels’ decision not to fine Spain and Portugal for exceeding deficit targets.
With Brexit one of the major risks to the eurozone economy for the near future, the ECB reiterated that preserving the integrity of the EU’s single market and the “homogeneity of rules and their enforcement” are “imperative” as London’s and Brussels’ negotiators settle in for two years of wrangling.
ECB Vice-President Vitor Constancio faces questions from MEPs in Brussels on the report from 14PM.