More ‘inclusive’ reforms could boost eurozone economy: ECB

Economic reforms could prove more effective if they are 'inclusive', a new study by the ECB says

Frankfurt am Main (AFP) – Eurozone countries could boost growth and employment by tackling more “inclusive” reforms to their economies, according to a study published Friday by the European Central Bank.

“Well-designed structural policies could yield substantial benefits for euro area citizens via a stronger and more inclusive growth in employment and incomes,” the authors suggested.

The working group that produced the study was set up by the ECB’s governing council two years ago.

Since that time, “inclusive” growth has become a buzzword widely used at international gatherings like the G20 and by organisations such as the OECD or the International Monetary Fund.

Political and economic elites have increasingly turned their attention to inequality as they scramble to understand the surge in anti-establishment politics and seismic events like Brexit or the election of Donald Trump.

“There is an increasing perception that growth in the past has not been sufficiently inclusive, and was not always associated with rising living standards for everyone,” ECB chief Mario Draghi said last year.

“This has fuelled the belief that some have been ‘left behind’ by the spread of market forces,” he added.

The report’s authors said countries should pursue reforms that would reduce “rent-seeking” or economic actors taking advantage of weak competition to fleece consumers.

They also urge changes to public institutions to squeeze out corruption and tax avoidance.

Both moves would “not only support growth but also enhance equity, social trust and social fairness,” the researchers found.

While such changes might appear desirable in themselves, they are also directly relevant to the central bank, potentially improving the effectiveness of its monetary policy — the interventions in interest rates and the money supply it uses to steer the economy.

But there is no one magic formula that can be applied to all 19 nations in the single currency zone, the authors said.

“Structural changes need to be country-specific and tailor-made to reflect the specific national starting conditions in terms of economic structures and institutions, as well as social preferences,” they noted.