By JAMES BOUTONES (Reuters) – The European Central Bank and the International Monetary Fund are working together to help countries recover from the financial crash, with both officials pledging to act as intermediaries to keep the financial system from collapsing, but not necessarily as a force for good.
The new European Union budget proposal, due on Wednesday, sets out a raft of measures to ease the economic squeeze as well as revive faltering governments that have struggled to revive economies that have slumped in the wake of the global financial crisis.
The plan, seen by Reuters on Thursday, would reduce the ECB’s mandate from six to four, the IMF’s from two to one and the European Commission’s from one to two.
It would allow member countries to increase their spending, boost spending on social security and support infrastructure spending and raise public spending.
The budget would also include €300 billion in new stimulus measures that would boost growth in the euro zone’s third largest economy, which has lost more than half its GDP over the past three years.
“It’s the most significant financial package we have seen,” said Andreas Zeeke, an economist at Pantheon Macroeconomics in Brussels.
“The ECB is a powerful and very important instrument in terms of ensuring that people get back to work.
But it is not a great deal to play with.”
A large portion of the plan will be spent on helping the euro-zone economies recover, but also in order to help smaller countries recover as well, Zeeki said.
A small portion of this plan will also focus on providing aid to struggling countries, such as Greece, and would not be directly tied to a specific country.
The ECB’s chairman, Mario Draghi, is a staunch advocate of the IMF-backed stimulus package, and the EU budget will be the first step in setting out what he calls the “economic lifeline” for the euro area, as the region struggles to get out of its crisis.EU leaders are also seeking to boost the economy by providing more liquidity to banks and investors, while easing bank capital requirements and boosting the supply of loans.EU officials are also proposing to ease a cap on the amount of assets that can be held by banks.
The central bank has been under pressure from its lenders to keep rates on hold, and some economists are calling for a move away from the zero-interest rate environment and toward a higher rate.
The IMF and ECB are not part of the talks, but they are working closely together on issues such as monetary policy, currency stability and fiscal policy.
The European Commission is a member of the International Financial Stability Board, which works to manage financial markets and help ensure a smooth transition to a stable global economy.(Reporting by James Boutones; Editing by Louise Ireland)