The ECB did not cut interest rates any further. Nor did it signal any new measures to support economic growth or hold down borrowing costs in Spain, which is battling to avoid the need for an international bailout.
ECB President Mario Draghi said it was up to the governments in the 17-nation currency union to get a grip on their bloated budgets and pursue policies that would renew economic growth and create employment in the future for “poor, jobless young people.”
Draghi said it would be unhelpful for European governments to abandon austerity efforts, which seek to contain the region’s debt crisis. “Progress is being made in many countries, but several governments need to be more ambitious,” he said.
In recent months, the ECB has provided crucial support to Europe’s financial system by offering $1 trillion in long-term loans to banks and investing roughly $300 billion in the government bonds of economically stressed nations. Wednesday’s meeting, held in Barcelona, blunted any expectations of further help.
The ECB’s posture comes despite advice from the International Monetary Fund and others that the bank should do more to support growth in struggling countries — even if those steps would risk higher inflation.
The United States is hoping that the euro zone digs out of its problems soon. An extended period of slow growth in Europe would hurt the prospects of countries that rely on the region for trade.
Political risks are growing as well. Upcoming elections in France and Greece may show that voter patience with austerity has run out. In the Netherlands and elsewhere, nationalists have questioned the wisdom of the euro and the decades-long project of European “integration.”
The IMF said in its latest survey of the world economy that the ECB should further cut interest rates from their already low 1 percent. The IMF noted that price increases are under control and that “low levels of domestic inflation” in the euro zone may be keeping the region from shifting economic activity toward struggling countries.
Some analysts have begun suggesting that a dose of inflation might actually help.
Sustained, rapid inflation is bad for an economy, eroding the value of money, stoking demand for higher wages and distorting investment decisions. But stagnant prices — or outright deflation — can also be corrosive.
Countries saddled with high debt can benefit from inflation because it shrinks the real value of how much is owed. The amount of debt stays fixed, in effect, in a currency that is worth less.
At recent IMF meetings, the agency’s economic counselor, Olivier Blanchard, said the ECB needs to set policies appropriate for the region as a whole, not tailored to Germany’s historic preoccupation with inflation.
Officials in Spain argue that inflation rates were kept too low, helping Germany through the end of its expensive absorption of the former East Germany but fueling what became a real estate bubble in Spain and a government borrowing binge in Greece.
“Monetary policy was damaging for the last 10 years. When Spain needed high rates, other countries needed it the other way around,” said Jose Luis Suarez, a finance professor at the IESE business school here. “It was expansive in a boom.”
Draghi, credited in his first months on the job with policies that averted a worsening crisis in euro-zone banks, was firm during his visit to Spain: There is no quick fix.
Controlling inflation “is the best contribution of monetary policy to fostering growth and job creation in the euro area,” he said.