Spend on schools and hospitals, ECB tells euro zone

ECB headquarters building is seen in Frankfurt
European Central Bank (ECB) headquarters building is seen in Frankfurt, Germany July 20, 2017. REUTERS/Ralph Orlowski

August 1, 2017

FRANKFURT (Reuters) – Governments in the euro zone should raise spending on health, education and infrastructure if they are to grow out of their debt quagmire, the European Central Bank said on Tuesday.

The ECB’s study adds weight to calls for greater investment in the bloc, where many countries have high public debt and meager long-term growth prospects despite a recent cyclical upswing.

After years of flat or shrinking government budgets, the ECB recommended channeling spending towards “growth-friendly” categories such as education, health and infrastructure.

“Particular care should be devoted to redirecting more resources towards the areas of health, education or infrastructure, as such spending has been shown to have positive long-term effects on growth, while cutting less productive spending,” it said in the study.

The ECB, which has flooded the euro zone with cheap cash, has claimed credit for a sharp rebound in the bloc’s economy in the past year.

But it has also warned this won’t last unless structural measures are put in place by governments and European authorities.

Among those cited in the study, the ECB recommended easing the tax burden on workers and companies while focusing more on property and consumption.

The ECB, which sets the monetary policy for the euro zone, does not have a direct say in governments’ fiscal stance, but one of its board members takes part in the meetings of the bloc’s finance ministers.

(Reporting By Francesco Canepa; Editinmg by Andrew Heavens)