ECB’s Pereira Declares Price Stability Mission Accomplished—Now Demands Urgent EU Reforms
Price stability? Check. Next up: a complete overhaul of the European Union's economic rulebook.
ECB Executive Board member José Pereira dropped the mic today, announcing that the central bank's core mandate has been achieved. The era of runaway inflation is officially over. But Pereira didn't stop at the victory lap. He immediately pivoted to a stark warning: the EU's current fiscal and structural frameworks are relics, unfit for the next crisis.
The Reform Imperative
Pereira's call to action wasn't subtle. He urged rapid, sweeping reforms to the EU's Stability and Growth Pact—the often-ignored rulebook governing national budgets. The message was clear: achieving stable prices is just the first step. Maintaining that stability requires a more integrated, disciplined, and flexible European economic governance system. Think of it as fixing the foundation after putting out the kitchen fire.
A System Built for the Last War
The current framework, he argued, failed its stress test during the pandemic and energy crisis. It's too rigid, too reactive, and too easy for member states to bypass with creative accounting—a favorite pastime for finance ministers everywhere. The proposed reforms aim to shift from punishing past debts to incentivizing future growth and green investments, while somehow keeping deficits in check. Good luck threading that needle.
Markets are watching. A credible, reformed EU fiscal framework could solidify the euro's standing and create a more predictable environment for investment. The alternative? More ad-hoc crisis fighting and a slow drift into irrelevance—a fate worse than a bear market for the Brussels bureaucracy.
So the ECB has done its job. Now it's throwing the hot potato of deep, politically painful reform squarely into the laps of Europe's governments. Get ready for the usual chorus of agreement followed by glacial progress. After all, nothing moves slower than a consensus-driven bloc trying to rewrite its own rules—except maybe a blockchain during peak congestion.
Governments must lead the way on reforms
Pereira said that now, it is up to European governments and the European Union to make important changes. These structural reforms are significant steps that can help the economy grow faster and function more effectively in the long term.
He said Europe’s economic growth is “anemic,” which means it is very weak. Pereira believes that governments need to act so that Europe can utilize the strengths of its single large market. A single market is characterized by the ease of trade among all countries in the group, allowing people to buy and sell across borders without encountering many problems.
Pereira said that at this stage, responsibility lies with governments and the European Commission. He added that if Europe wants to make the most of a consumer base of 450 million people, those reforms must be carried out, especially within the single market.
In other words, the ECB can only do so much with money rules. To strengthen and accelerate economic growth, governments must implement significant reforms, including enhancing business operations, facilitating worker skill development, and facilitating international trade.
Interest rates hold as inflation nears target
The ECB mainly controls the economy by adjusting interest rates, which determine the cost of borrowing money. When interest rates are high, borrowing becomes more expensive, so people and businesses spend less. When rates are low, borrowing is cheaper, making it easier to spend and invest.
Pereira stated that, since inflation is close to the 2% target, the ECB does not need to adjust interest rates at this time. This is a sign that the economy is stable and not facing big inflation problems.
He also cited some well-conducted monetary policies, including setting interest rates, as something that has worked well for the economy. That is, the ECB helped businesses and families when they needed it, particularly in tough times. However, he was also adamant that the ECB can’t handle everything on its own.
The bank may help stabilize prices, but governments also have to promote growth through significant reforms and improvements. Maintaining stable prices is important for everyone. There cannot be poverty when prices rise too fast, which WOULD make things like food, electricity, or transport unaffordable.
If prices fall too much, businesses will struggle to grow, and people may lose their jobs. The ECB’s role is to ensure that prices rise slowly and steadily, at a rate of around 2% per year. Pereira’s remarks also serve as a point to European leaders that money rules aren’t sufficient.
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