On the occasion of the European Central Bank’s (ECB)’s Annual Report to a European Parliament Committee in Brussels, Vice President of the board Vitor Constancio expressed the opinion that the bank’s monetary policy stance is appropriate and a reassessment is not warranted at this stage.
“The euro area economy demonstrated substantial resilience in 2016. The recovery is progressing and is now gaining momentum. Our monetary policy stance is appropriate and a reassessment is not warranted at this stage,” said Constancio from Brussels.
“However, we continue to stand ready to react to downside shocks. While cyclical conditions have improved, we still need to address, without delay, the legacy of the crisis and reinforce the structural underpinnings of our Union,” added ECB’s Vice-president.
Euro area macroeconomic conditions
According to the Annual report, “macroeconomic conditions have improved and the euro area has been a major source of positive news,” as GDP grew at a solid rate of 1.7% in 2016 and in the first quarter of 2017, economic sentiment climbed to the highest levels since 2011, despite international backdrop.
4,5 million more people are employed than three years ago according to the report, as unemployment has reached its lowest point since May 2009. “Our measures have also reduced fragmentation among member states: the dispersion of both GDP growth and inflation rates is at the lowest level since the beginning of the monetary union,” adds the ECB report.
Banking sector: structural remedies and NPLs
As for the banking crisis, ECB’s 2016 Annual Report calls for “decisive action is needed at the sectoral, national and European levels.”
Banks need to continue adjusting their business models to better cope with the low-interest rate environment. On this, the optimal strategy is likely to depend on each bank’s core characteristics with adjustment measures having to include structural remedies, such as cross-border mergers and acquisitions where they allow efficiency gains.
Second, significant effort is needed to solve the problem of non-performing loans (NPLs). “While actions should be taken by stakeholders at the national level, these should be harmonised in a European blueprint for asset management companies (AMCs), among the strategies to reduce the stock of NPLs on banks’ balance sheets,” writes the report, just two days after EU-28 finance ministers discussed the issue in Malta’s Ecofin meeting.
“The extent and macroprudential nature of the problem calls for a comprehensive and coordinated response at EU level,” underlined ECB’s Constancio.