It’s time to move on from ‘low for long’ growth, EU economy minister tells Harvard

Central banks around the world are considering cutting interest rates following the fastest monetary tightening cycle in history in response to rising inflation.

But with inflation now easing and the economy growing at a more robust pace, European Commissioner for the Economy Paolo Gentiloni said at Friday’s meeting that interest rates near zero and domestic production slowing are likely to rise. He said it may be time to reconsider the previous international standard of sustainable growth. .

“Europe cannot be content with a ‘prolonged period of low growth.’ It is possible to revive Europe’s growth and competitiveness,” he said in a speech at the Harvard Kennedy School, calling for standardization of economic policy across the continent. It promoted new European initiatives.

Mr. Gentiloni spoke of the European He said that Japan’s economic policy is at a crossroads. Secretary.

“We have to start reflecting on what comes next. While the Next Generation EU is being talked about as Europe’s Hamilton moment…the truth is that we crossed this river with one foot. That’s the thing,” he said.

Europe’s fiscal proposals, particularly those on climate finance, mirror key US initiatives such as the Inflation Control Act (IRA) and the bipartisan Infrastructure Act, and take a less hands-on approach to economic growth. , is actively trying to redesign the industry. Targeted incentives.

The financial context for these policies, both in Europe and the US, has been driven by the pandemic rather than a political agenda, and includes massive fiscal stimulus and quantitative tightening to curb the resulting inflation. was.

But Gentiloni suggested Friday that the assumptions underlying that response — that higher interest rates and a cooling of the broader economy are the only ways to deal with high inflation — may need some revision.

“I believe that Europe needs to take a step forward. We need a new EU, backed by new common funding, to support common goals in areas where national size alone is not enough. “We have to have the audacity to imagine tools of that level,” he said. “In the long term, these tools should evolve towards permanent central fiscal capacity.”

Gentiloni pointed out that the threat to Europe from the two-year-old war in Ukraine is also a reason for increased centralization.

Gentiloni’s speech comes as a challenge to more traditional ways of thinking about the economy, many of which have been challenged over the course of the pandemic.

Wall Street has been waiting with bated breath for a rate cut since tightening began to ease in mid-2023 following a breakneck pace in 2022.

Markets are still expecting the Fed to keep U.S. interest rates unchanged at its next meeting in March after another big hit in January’s jobs report. CME Group’s FedWatch forecasting algorithm projects a 17.5% chance of a rate cut on Friday.