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ifo President Fuest: Monetary policy reaches its limits

Summary:
Ifo President Clemens Fuest believes that the ECB's monetary policy has reached its limits. "The ECB's reaction to the economic slowdown in the euro zone is appropriate, especially the announcement of extensive refinancing operations for the banks and the further postponement of possible interest rate hikes," says Fuest. "However, it is clear that monetary policy has largely shot its powder. If the euro zone slides into recession, the ECB will have few options to effectively counter it. ECB President Mario Draghi has once again called on the member states to introduce structural reforms and a more growth-friendly structure for government spending. In plain language: reduce spending for consumption, increase investment, no increase in government

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ifo President Clemens Fuest believes that the ECB's monetary policy has reached its limits. "The ECB's reaction to the economic slowdown in the euro zone is appropriate, especially the announcement of extensive refinancing operations for the banks and the further postponement of possible interest rate hikes," says Fuest.

"However, it is clear that monetary policy has largely shot its powder. If the euro zone slides into recession, the ECB will have few options to effectively counter it. ECB President Mario Draghi has once again called on the member states to introduce structural reforms and a more growth-friendly structure for government spending. In plain language: reduce spending for consumption, increase investment, no increase in government debt in the already highly indebted member states. Politicians should listen to him."

Clemens Fuest
Clemens Fuest took over from Hans Werner Sinn as chairman of the IFO Institute in April 2016. He is professor at the Faculty of Economics of the University of Munich.

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