Former European Central Bank Executive Board Member Lorenzo Bini Smaghi said governments must not take advantage of the efforts of central banks to calm markets by easing off on improving budget discipline.
“There are still many issues that policy makers need to tackle without having clear answers,” Bini Smaghi said today at a conference in Cambridge, England. “One is the balance between fiscal austerity and monetary policy.”
The ECB has injected more than 1 trillion euros ($1.3 trillion) into the banking system since December to boost liquidity, a move that lowered funding costs and sovereign-bond yields. President Mario Draghi said yesterday that euro-region governments should continue to take “decisive measures” after the liquidity provisions helped restore investor confidence.
“The more monetary policy does, the more it takes away from the fiscal having to adjust,” Bini Smaghi said. “That’s a complex issue that policy makers need to solve.”
He also said that Europe’s fiscal compact is “only one aspect” of the solution to the region’s debt crisis.
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