After a terror attack on Paris stunned the world, the European Central Bank has acknowledged political and cultural schisms are rising tensions throughout the European Union.
The comments came in an interview with Yves Mersch, Executive of the ECB, who spoke with Les Echos, a French newspaper, about political developments throughout the EU. Mersch acknowledged that the terror attack in Paris, which claimed 129 victims, were “atrocious attacks” that have shocked the ECB. “We express our solidarity, our compassion, and our sincere condolences to the families and friends of the victims,” he said.
At the same time, Mersch was quick to acknowledge that the ECB sees the need for limits on national sovereignty when it comes to economic issues, which is the source of deep political and social tensions throughout the EU, particular in hotspots like Greece. We have asked Greece to adopt a large number of measures in a very short time. It appears that the Greek government is still finding it hard to implement the agreed programme,” he said curtly.
Mersch also added that he believes the Greeks are to be trusted and that agreements between the ECB and Greece will hold, despite previous tensions between the country and multinational central bank. “The Ministers of Finance of the euro area are confident that the commitments made will be honoured; they are convinced that the necessary measures will be taken in order to release the pledged funds,” he said.
When asked if the ECB had a view on Greece’s politicians or Syriza, the political power that has largely fought against ECB-driven demands for austerity, Mersch simply stated, “The ECB does not take a political stance on the matter. It follows rules which are transparent and public.”
Greece is not the only source of tension in Europe when it comes to divergences between monetary policies that benefit the EU and those that benefit certain countries over others. Portugal has increasingly been voting on distancing itself from the EU, both on concerns of higher migrant inflows and on pressures to keep monetary policies disinflationary. Mersch dismissed concerns about Portugal.
“At the ECB, we respect all existing governments, as long as they implement the commitments they have made on behalf of their countries. That applies to Portugal and to all the other euro area countries,” he said.
Negative Rates, Quantitative Easing
Hinting at further loose monetary policies, despite an official stance against such a policy throughout most of 2014, Mersch optimistically said the ECB had several ways to stimulate growth that it could experiment with in 2016. “We have not exhausted our options. QE expects to continue until September 2016, at least. Our monetary policy is medium-term oriented. We are already taking stock of completed work and what remains. And we are making decisions for the future based on the marginal effectiveness of the options we have available to us,” he said.
While not admitting an interest rate cut further below the zero lower bound was likely for the Eurozone, Mersch also acknowledged that QE is going to continue for a long time by necessity. “Given that a high number of securities have been purchased, if we stopped the programme overnight it would cause a cliff effect, that is, a sharp drop in liquidity,” he said.