Eurogroup President Jeroen Dijsselbloem called on the G20 biggest economies to take action to revive the world economy by focusing more on implementing key structural reforms and stimulating investment particularly on infrastructure.
“Structural reforms, opening up new opportunities for investments and maintaining a growth friendly fiscal stance are needed to increase the growth capacity of our economies,” Dijsselbloem told Xinhua in an interview on Tuesday before leaving for the G20 meeting to be held in Shanghai on Feb. 26-27.
Policies to boost growth are high on the agenda of the G20 meeting as finance ministers and central bankers of the world’s biggest developed and developing economies gather in China, which holds the rotating presidency of the group this year.
The International Monetary Fund (IMF) last month cut its world economic growth forecast for this year and next, citing the slowdown and rebalancing of the Chinese economy, lower commodity prices and strains in some large emerging market economies.
“More initiatives have to come from the political side rather than the side of the central bankers to stimulate our economies,” said the president of Eurogroup. “Central bankers are approaching the end of their rope.”
In his opinion, there are limits to the expansionary stimulus measures undertaken by central banks, including the European Central Bank (ECB).
The ECB is expected to announce in March additional stimulus on its current quantitative easing program of 60 billion euros (about 66 billion U.S. dollars) a month to revive the single currency economy.
The Eurogroup chief pins more hope on politically hard reforms, such as making public sectors fiscally sustainable, a move European governments struggle to implement.
He opposed calls earlier this week by Italian Prime Minister Matteo Renzi for increased government spending.
“Fiscal space is quite limited in the Euro zone. We have improved the levels of our deficits, but there is fiscal space only in Germany and Estonia,” he explained.
As to new investment opportunities on key sectors, Dijsselbloem recognized that “within the budget governments have to make politically difficult choices”. He called on Germany to invest more on infrastructure projects.
“For the emerging economies in the Asian region improving the infrastructure is key to get sustainable growth levels,” he said, adding that the Asian Infrastructure Investment Bank (AIIB) can play a significant role towards this direction.
BREXIT TO HIT EU FINANCIAL SECTOR
Britain’s threat to leave the European Union (EU) may have a negative effect on the bloc’s growth, recognized the Eurogroup chief. The block is currently facing a number of political issues, most notably the disagreement over how to handle a massive influx of refugees, which has put increased strains on its common ties.
Dijsselbloem estimated that Brexit would affect the European economy and particularly its financial sector.
If Brexit were to happen then the financial capital of Europe would be placed outside Europe and the outcome would bear negative effects on the European internal market, he said.
He dismissed the view that the latest deal between the EU and Britain to avoid Brexit offers leeway to the later in applying banking and market’s regulations.
“It is not in the UK’s interest to move out of the common regulations, the single rule book for the financial markets,” he said.
He also suggested that EU future decisions aiming at strengthening the financial sector would avoid “being detrimental to the City”.
GREECE MUST IMPLEMENT REFORMS
Only when Greece has satisfactorily implemented a series of reforms, which include changes to the country’s pension system, can the euro area contemplate moves to ease its debt burden, Djisselbloem said.
“While politically difficult, the Greek government still needs to implement a reform of the pension system and tackle a number of fiscal issues,” he stressed.
Dijsselbloem also stressed the need for Greece to set up a privatization fund on the completion of the first review.
Negotiations between the heads of the EU/IMF mission reviewing the country’s progress on an overhaul of the pension system, fiscal targets and the handling of bad loans are still under way in the framework of the first review of the country’s third bail out program. The completion of the review would also unlock the next instalment of 5.7 billion euros.
EUROPE, CHINA SHOULD STRENGTHEN TRADE TIES
“Strengthening trade internationally could lead to more potential growth which we badly need,” said Dijsselbloem. “World trade is falling back and it needs a boost.”
Most notably Europe and China need to strengthen their trading ties, the Eurogroup chief said, and called upon both sides to lift restrictions hindering their trading relations.
Boosting international trade along with the search for a new path for growth, more effective economic governance and inclusive development are the priorities for China during its 12-month presidency of the G20 group.
As to the worrisome stock market, the Eurogroup chief cautioned that this should not dominate people’s thinking on the world economy.
The turmoil in foreign exchange markets and the outflow of funds from emerging economies are expected to be on the agenda in Shanghai.
“The intervention of monetary authorities in interest rate policy and in quantitative easing is becoming the key issue and needs to be managed better if we want to make sure we don’ have more shocks than those we have seen in the past,” said the Eurogroup president.