The European Central Bank has charged to the rescue of the eurozone once again, but governments' foot-dragging on reform could undermine its efforts, analysts said on Friday. ECB chief Mario Draghi insisted that no deals had been made over radical action announced on Thursday to make money easily available, in exchange for tighter budget discipline by eurozone countries. But some observers suggested that the surprise rate cut and asset purchase programme, which Draghi announced to ward off the threat of deflation, could be part of a wider game-plan to get the eurozone economy back on its feet.
If Germany turns a blind eye to so-called "deficit sinners", France and Italy would speed up structural reforms of their economies, Brussels would launch new initiatives, and the ECB would push down the value of the euro, it was suggested. The ECB moves did indeed send the euro down against the dollar: it fell below $1.30 on Thursday for the first time since July 2013. And stock markets rose.
But the ECB action, which is just what France had wanted, could ultimately take pressure off governments, who have been only too eager in the past to shy away from unpopular reforms. And Draghi, who insisted on Thursday that monetary policy can do only so much, could find himself fighting a lone battle, analysts warned. France, where there is hostility to the EU's limits on budget deficits, has already indicated that it will again struggle to meet the EU's strict requirements.
Italy has also called for an easing of the fiscal austerity, widely seen as being imposed by Germany. Draghi insisted that he was not calling for a relaxation of Europe's budget rules. "These discussions on flexibility should not be viewed (as if)... they would undermine the essence of the Stability and Growth Pact," he said, referring to the budget rules. "One could do things that are growth-friendly and also would contribute to budget consolidation."
Draghi also denied there was any sort of "grand bargain". "There is no 'bargain', no negotiating going on. This would not be institutionally correct. We do monetary policy and others do other policies," Draghi said. He insisted that monetary policy alone cannot steer the 18 countries that share the euro away from deflation - a climate of falling prices which can cause economies to shrink.
"You need growth. You need to lower unemployment. You need fiscal policy. You need structural reforms first and foremost," he said. "We can provide as much monetary stimulus as we want, as much availability of credit as we want. But if the person who has planned to use this credit for a new business has to wait eight months before he or she can open this new business, and then once he does it, has to pay lots of taxes, this person will not apply for credit," Draghi said, explaining why governments had to pursue reforms.
Analysts said the governments would have to play their part if the ECB measures are not to prove ineffective. "The ECB can only play the support act. A lack of dynamism in France and Italy and Russia's aggression in Ukraine have interrupted the recovery," said Berenberg Bank economist Holger Schmieding. "These factors are outside the ECB's control." While the ECB's latest measures would help, they would not solve all problems, Schmieding said.
Tom Rogers at EY Eurozone Forecast agreed. "Governments have a responsibility for improving their own growth prospects as well as looking to the ECB," he said. RBS economist Richard Barwell was also adamant that the ECB was not letting governments off the hook. "But the ECB is in favour of changing the fiscal mix, in particular squeezing government consumption to create scope for tax cuts," he said.
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