SINTRA, Portugal—Top officials from the world's two
largest central banks on Saturday offered differing views regarding
the role they should play in pushing for government economic
overhauls, highlighting the diverging paths of major economies and
the challenges of achieving inflation objectives.
In a panel discussion concluding a European Central Bank
conference in a resort town near Portugal's western coast, ECB
President Mario Draghi defended his stepped-up calls for economic
reforms in Europe. He said this was one of the biggest issues for
the region's economy, which has faced two recessions since 2009 and
still has an unemployment rate of 11.3%—far above levels
in the U.S. and Japan.
"In a monetary union, you can't afford having large and
increasing structural divergences between countries," Mr. Draghi
said. "They tend to become explosive. Therefore, they are going to
threaten the existence of the monetary union."
The eurozone comprises 19 countries, each of which sets its own
fiscal and economic policies while sharing a single monetary
policy.
"We don't want to be intrusive" in urging governments to act on
labor-market and fiscal-policy changes, Mr. Draghi said. "It's a
policy appeal to action."
In contrast, Federal Reserve Vice Chairman Stanley Fischer urged
a more cautious approach, though he noted the U.S. economy would
benefit from greater infrastructure spending.
"You can talk about [structural reforms] from time to time, but
you can't make this your main talking point every time you meet the
press," he said during the panel discussion. "The temptation [to
speak about structural reforms] is there, but we don't take
it."
In part, this difference in emphasis between the Fed and ECB
reflects the current states of their economies. In the U.S., where
labor markets are considered more flexible and mobile than in
Europe, unemployment was just 5.4% in April, far lower than in
Europe.
"In Europe, the structural component of low growth is much
bigger" than in the U.S., Mr. Draghi said, adding that tax and
spending policies can play a more active role in boosting the
region's growth prospects. "You can make a case for targeted,
well-designed, growth-friendly fiscal expansion."
Speaking on the same panel, Bank of Japan Gov. Haruhiko Kuroda
said monetary policy can make it easier for governments to
introduce reforms to make their economies more flexible.
"If your economy grows with a 2% inflation rate, then even
serious and severe structural reforms are maybe accepted by the
general public," he said, adding that he expects inflation to hit
the bank's 2% target in the first half of the 2016 fiscal year.
Japan's gross domestic product grew 2.4%, at an annualized rate,
during the first quarter, the fastest of the three economies.
Eurozone GDP expanded at a 1.6% annual rate, while the U.S. GDP
grew just 0.2%. Still, the U.S. has had a more robust recovery
since the global financial crisis on the back of large fiscal and
monetary stimulus. The Fed is expected to start lifting interest
rates from near zero later this year, while the ECB and Bank of
Japan are purchasing large amounts of government bonds, a policy
known as quantitative easing that the Fed also deployed
aggressively in the years after the crisis but has since ended.
"Quantitative easing is unusual," Mr. Fischer said. "It looks
like magic to many people. It looks like bad magic to a lot of
people. Zero interest rates affect savers more than it affects
people who are not yet at that stage of their lives," he said,
adding that, ultimately, the economic benefits of easy-money
policies outweigh that effect.
Mr. Draghi said he agreed that low interest rates had a "very,
very significant" impact on savers in the eurozone.
"If QE will actually achieve its objectives of price stability
or…lowering the unemployment rate, that's the best
response to the critics" that say monetary policies have widened
inequality, he said.
Write to Brian Blackstone at brian.blackstone@wsj.com
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