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UPDATE 1-Merkel warns Europe not to stray from reform path after ECB move
January 22, 2015 / 3:46 PM / 3 years ago

UPDATE 1-Merkel warns Europe not to stray from reform path after ECB move

* Merkel speaks in Davos as ECB’s Draghi unveils QE programme

* German leader says understands controversy over ECB move

* Ahead of Greek election, Merkel stresses quid pro quo (Adds quotes, background)

By Noah Barkin

DAVOS, Switzerland, Jan 22 (Reuters) - German Chancellor Angela Merkel warned fellow European leaders on Thursday not to ease off on economic reforms after the European Central Bank announced bold new moves to bolster growth in the euro area.

Speaking to a large audience at the World Economic Forum in Davos, Switzerland, just as ECB President Mario Draghi was unveiling a hotly anticipated bond-buying programme, Merkel said she understood why the recent debate over ECB policy had been controversial given vast amounts of liquidity already sloshing around in global markets.

“It does not surprise me that there is a contentious debate within the ECB. The world is already well supplied with liquidity,” she said.

“Regardless of what the ECB does,” she added, “it should not obscure the fact that the real growth impulses must come from conditions set by the politicians.”

While praising reform progress in Italy and France, she said European governments should move “even more decisively” to introduce reforms in their economies now that the ECB was buying them more time.

At his press conference in Frankfurt, Draghi announced plans to pump hundreds of billions of new money into the sagging euro zone economy.

The new quantitative easing programme foresees monthly purchases of 60 billion euros in public and private sector securities for as long as needed to bring about a sustained reversal of the downtrend in inflation, Draghi said.

He took the move despite opposition from Germany’s Bundesbank and concerns in Berlin that it could allow spendthrift countries to postpone economic reforms.

“The euro crisis has been brought under a degree of control but it has not been overcome,” Merkel said. “Europe has not won back enough confidence and it is not sufficiently competitive.”

Ahead of an election in Greece on Sunday which could vault a left-wing party into power that rejects the austerity advocated by Berlin, Merkel said her policies had always been aimed at keeping Greece in the euro zone.

“There have always been two conditions for this: a readiness for solidarity that we will continue to show and a readiness to take responsibility for oneself, and I‘m sure Greece will continue to show this.” (Reporting by Noah Barkin and Paul Taylor; Editing by Hugh Lawson)

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