ECB’s Pereira says price stability achieved and urges EU reforms

European Central Bank (ECB) Governing Council member Álvaro Santos Pereira stated on Wednesday that the euro area has essentially achieved price stability, emphasizing that broader European Union reforms are now crucial to maintaining the bloc’s economic resilience.

Speaking in an interview with Portuguese public television, Pereira noted that inflation in the euro zone has stabilized around the ECB’s 2% target – a level widely regarded as consistent with the bank’s medium-term objective. This follows a period in which inflation slowed and stabilized after policy tightening and easing measures over the past year. Pereira is also the governor of the Bank of Portugal.

He said that ECB President Christine Lagarde had made clear that the central bank was in a good position, with price stability in place. Pereira added that monetary policy had done what it needed to do, supporting the economy when necessary.

This means the ECB believes it has already taken the necessary steps to help the economy grow and maintain stable prices. The bank has not raised or lowered interest rates for several months. In fact, interest rates have remained unchanged for the last four meetings.

Governments must lead the way on reforms

Pereira said that now, it is up to European governments and the European Union to make important changes. These structural reforms are significant steps that can help the economy grow faster and function more effectively in the long term.

He said Europe’s economic growth is “anemic,” which means it is very weak. Pereira believes that governments need to act so that Europe can utilize the strengths of its single large market. A single market is characterized by the ease of trade among all countries in the group, allowing people to buy and sell across borders without encountering many problems.

Pereira said that at this stage, responsibility lies with governments and the European Commission. He added that if Europe wants to make the most of a consumer base of 450 million people, those reforms must be carried out, especially within the single market.

In other words, the ECB can only do so much with money rules. To strengthen and accelerate economic growth, governments must implement significant reforms, including enhancing business operations, facilitating worker skill development, and facilitating international trade.

Interest rates hold as inflation nears target

The ECB mainly controls the economy by adjusting interest rates, which determine the cost of borrowing money. When interest rates are high, borrowing becomes more expensive, so people and businesses spend less. When rates are low, borrowing is cheaper, making it easier to spend and invest.

Pereira stated that, since inflation is close to the 2% target, the ECB does not need to adjust interest rates at this time. This is a sign that the economy is stable and not facing big inflation problems.

He also cited some well-conducted monetary policies, including setting interest rates, as something that has worked well for the economy. That is, the ECB helped businesses and families when they needed it, particularly in tough times. However, he was also adamant that the ECB can’t handle everything on its own. 

The bank may help stabilize prices, but governments also have to promote growth through significant reforms and improvements. Maintaining stable prices is important for everyone. There cannot be poverty when prices rise too fast, which would make things like food, electricity, or transport unaffordable. 

If prices fall too much, businesses will struggle to grow, and people may lose their jobs. The ECB’s role is to ensure that prices rise slowly and steadily, at a rate of around 2% per year. Pereira’s remarks also serve as a point to European leaders that money rules aren’t sufficient.

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