|Key figures at a glance|
|Marginal lending facility||0.30 %|
|Main refinancing operations (fixed rate)||0.05 %|
|Deposit facility||− 0.20 %|
|Effective from 10 September 2014|
|Why has the ECB introduced a negative interest rate?|
The European Cultural Days 2014 will bring to the fore a country that is deeply rooted in European culture.
This year, artists from Bulgaria will enter the stage. As in previous years there will be a varied programme that is likely to deliver some surprises to the audience. From mid-October until the closing ceremony on 12 December, this is a unique opportunity to get acquainted with Bulgarian culture.
One lesson that we learned after the financial crisis is that achieving sustainable economic growth is always about both demand and supply. Moreover, policies that support demand empower policies that support supply, and vice versa.
In the post crisis environment of a large debt overhang, partly structural unemployment and weak productivity levels, supply-side policies can increase the effectiveness of demand-side policies and help empower demand. By raising potential growth they create more space for spending (governments, firms and households). Additionally, by reactivating/reskilling the workforce, they allow employment to respond faster to higher demand. Finally, they ensure that higher demand is channelled towards the right sectors.
While their long-term positive effects are undisputed, structural reforms, especially in times when monetary policy is at the lower bound, are seen to have negative short-term effects through increasing real interest rates. However, structural reforms can be effective in the short run as they raise expectations of higher incomes and cause firms to increase investment today and bring forward the economic recovery.
Achieving a positive short-term impact from structural reforms depends on both the pace and composition of reforms. First, instead of the traditionally gradual approach, reforms need to be frontloaded (as e.g. in Latvia). Second, they must focus not only on competitiveness, but also on increasing the rate of productivity growth in the economy.
When thinking about the composition of reforms, one should have in mind innovation (see firms’ market entry and turnover), adoption (e.g. information and communication technology) and reallocation (labour market reforms).
But while the full benefits of these efforts are still emerging, aggregate demand should be supported to counteract the potentially destabilising effect of lower prices and higher real interest rates. This can be done by fiscal policy, when it is available without questioning long-term debt sustainability. And it can be done by monetary policy, even when interest rates have reached the lower bound, by expanding the central bank’s balance sheet and channelling liquidity to the real economy.