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Merkel Fires a Shot across Bow of other Eurozone members

Germany’s Chancellor, Angela Merkel mischievously chose today to warn that the European Central Bank’s Quantitative Easing programme will not be enough to solve the euro crisis. Merkel, called for urgent fiscal reform in Europe at a special session of the 45th World Economic Forum Annual Meeting.

Whatever the decision of the European Central Bank (ECB) on quantitative easing, she said that European leaders must not be diverted from continuing with meaningful structural reforms. “Time is of the essence,” she said. “Every day we delay is a lost day. We need to promote growth and create long-term jobs.”

Merkel was speaking at the Annual Meeting in Davos-Klosters, Switzerland, from 21 to 24 January 2015. Europe has an opportunity to emerge stronger out of the crisis, the Chancellor said. While acknowledging progress by countries such as Italy, Spain and France, she stressed that Europe is not out of the woods yet. “The European single market needs to become less regulated and more open.”

The growth-austerity argument is a false dichotomy, she added. “Germany has shown that growth-oriented fiscal policy is possible,” she said. Pointing to internal demographic challenges, Merkel emphasized the need to manage debt levels to ensure that onerous burdens are not passed on to the next generation as 6 million German baby-boom workers enter retirement age.

Merkel called on other European leaders to begin fiscal consolidation. She pointed to historic low interest rates and questioned how countries with large fiscal deficits will fare if rates rise. “Now is the time to get our houses in order,” she said. The Chancellor added that Europe needs to grasp several immediate opportunities. The first is for more open trade via the Transatlantic Free Trade Agreements.The second is for Europe to become a standard-setter globally in digitization.

On Greece, she emphasized that Germany’s actions have always been oriented towards keeping Greece in the Eurozone. “We have to both show solidarity with Greece just as they show readiness to shoulder their responsibilities.” Merkel concluded by affirming Germany’s position in Europe. “Germany will remain a stable anchor in Europe,” she said.

The UK’s Confederation of Industry also echoed her call for structural reform saying the the ECB’s QE intervention was not enough on its own.

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