The aging of the European population represents a downward pressure on interest rates, increasing the probability that these fall to zero or even below, as well as a threat of longer recessions with less vigorous recoveries, as explained on Tuesday. in Madrid the chief economist of the European Central Bank (ECB), Peter Praet.
In this regard, the Belgian representative in the Executive Committee of the ECB has indicated that this likelihood of rates approaching zero may continue to rise and be exacerbated by the imminent retirement of baby boomers, "which may add further pressure to the low on interest rates ".
Thus, the chief economist of the ECB has warned during the opening conference of the Chair "la Caixa", which was attended by the chairman of Caixabank, Jordi Gual, that the aging of the European population could have implications for the way in which the economy and prices behave.
"Recessions may be longer and recoveries slower and more superficial, with greater risks of not meeting the objective (inflation)," said Praet, adding that "the probability of reaching zero rates is something we have to To learn to live together".
In this sense, the president of Caixabank, Jordi Gual, It has added to the reflections on economic policy, stressing that in a complex environment, monetary institutions must take into account the management of risks and adopt a long-term vision to avoid mistakes of the past.
For Gual, "stabilizing the economy and doing it in a way that the next expansionary cycle presents a sustainable growth are complex tasks that are carried out successfully when the different areas (regulation, fiscal policy, monetary policy and structural reforms) work in a coordinated manner "
In addition, the Belgian economist has called for structural reforms to free central banks from the burden placed on them during the recent crisis, despite the political difficulty of carrying out these changes, although he stressed that the reform of pensions "are not dreams" and they are already starting to appear in several countries.
In this sense, the Belgian banker has shelled different alternatives that governments are considering to address the reform of pensions, including the possibility of delaying the legal retirement age, thus boosting the part-time employment of the elderly.
"It is important to undertake structural reforms, many of them speak of regulatory elements and not necessarily tax increases," explained the banker to highlight the importance of governments achieving "room for maneuver" to seek stabilization of the economy as he did in its moment the ECB with its unconventional measures.
Regarding the intervention of the ECB, Peter Praet defended the importance of the management of market expectations through the monetary policy orientation of the institution, which has made it clear that interest rates could fall even from their current zero level if It was necessary, although the economist admitted that the drop in the price of money "has limits" to the secondary effects that negative rates may have, mainly among banks.
"If you say that interest rates can only go up, who would buy bonds, while if you say that the rates can lower more, the liquidity trap is avoided," the Belgian explained.
Against raising the inflation target
On the other hand, the ECB's chief economist has acknowledged that the lack of a secure common asset at European level "is a problem" for the euro zone, although he did not want to go into the possibility of Eurobonds.
Also, Praet has defended the position of the Governing Council of the ECB contrary to raise the objective of price stability of the central bank, slightly lower than 2%, noting that this decision would have a very high cost to society. "We think that 2% inflation is good and does not distort the economy, in the Council we think that raising the target would have a great cost for society," he added.