FRANKFURT (Reuters) – The European Central Bank must remain a key stabilizer in the euro zone economy as the bloc is at risk of long-term damage from the double-dip recession caused by pandemic, ECB chief economist Philip Lane said on Saturday.
A sustained period of low activity reduces labor productivity, weakens physical balance sheets and saves confidence, leading to potential spin-offs, Lane said in a speech to the Spring workshop at the European House – Ambrosetti.
“There is a clear risk that the dynamics of self-fulfillment will take hold, through uncertain economic prospects forcing households, companies and governments to hold back on spending plans, leading to a decline in overall demand. ‘Confirmation of future loss of confidence,’ he said.
In a bid to push the economy back on track to reopen, the ECB has pushed loan costs to record low rates through asset purchases and bank loans as low as minus 1 %.
“To counter these risk factors, it is vital that the ECB remains a resilient force and builds confidence by promising to maintain favorable funding conditions,” said Lane, the ECB’s chief emergency response architect.
Reciting with Balazs Koranyi; Edited by Jan Harvey