European Economic Outlook for 2011

• Based on its regular economic and monetary analyses, the Governing Council confirmed that the current key ECB interest rates still remain appropriate. It therefore decided to leave them unchanged. Our monetary analysis indicates that inflationary pressures over the medium to long term should remain contained. Inflation expectations remain firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term.

• Overall, we expect price stability to be maintained over the medium term, and the current monetary policy stance remains accommodative.

• Turning to fiscal policies, it is now essential that all governments fully implement their fiscal consolidation plans in 2011. Where necessary, additional corrective measures must be implemented swiftly to ensure progress in achieving fiscal sustainability. Experience shows that expenditure restraint is an important step towards achieving and maintaining fiscal soundness, notably when enshrined in binding domestic policy rules.

• Substantial and far-reaching structural reforms, complementing fiscal adjustment, should be urgently implemented to improve the prospects for higher sustainable growth and employment. Major reforms are particularly necessary in those countries that have experienced a loss of competitiveness in the past or that are suffering from high fiscal and external deficits. Sound balance sheets, effective risk management and transparent, robust business models remain key to strengthening banks’ resilience to shocks and to ensuring adequate access to finance, thereby laying the foundations for sustainable growth and financial stability.

Source : www.ecb.int

Posted February 10, 2011