Eurozone economic recovery is on track, although it is likely to remain uneven, the European Central Bank said in its latest monthly bulletin. The ECB Governing Council expects the euro area economy to grow at a moderate pace in 2010, in an environment marked by continued uncertainty.

The central bank said the outcome of the monetary analysis confirms the assessment of low inflationary pressures over the medium term. The Governing Council expects price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with the aim of keeping inflation rates below, but close to, 2% over the medium term.

ECB said the decisions taken on March 4 Governing Council meeting would help to avoid distortions associated with maintaining non-standard measures for longer than needed. At the meeting, the rate-setting committee decided to return to pre-crisis policy of variable rate tender procedures in the regular three-month longer-term refinancing operations, starting with the operation to be allotted on 28 April 2010. For the past 18 months, unlimited three-month loans have been offered at the repo rate.

Furthermore, the Governing Council had confirmed that this month's provision of six-month loans will be the last. In line with its decision on the 12-month long term refinancing operations of 16 December 2009, the bank would fix the rate for the six-month long term refinancing operations to be allotted on 31 March 2010 at the average minimum bid rate of the main refinancing operations over the life of this operation.

As regards fiscal policies, the ECB said today that high levels of public deficit and debt place an additional burden on monetary policy and undermine the Stability and Growth Pact as a key pillar of Economic and Monetary Union. It is of paramount importance that the stability programme of each euro area country clearly defines the fiscal exit and consolidation strategies for the period ahead.

ECB said this requires determined efforts, notably on the side of countries with high deficit and debt levels. All countries will be required to meet their commitments under the excessive deficit procedures. Consolidation of public finances should start in 2011 at the latest and will have to exceed substantially the annual adjustment of 0.5% of GDP set as a minimum requirement by the Stability and Growth Pact. A strong focus on expenditure reforms is needed.

Furthermore, the central bank said the key challenge that all euro area countries face in order to reinforce sustainable growth and job creation is to accelerate structural reforms. "Policies should be adopted which open up market access and increase competition. Overall, it is essential to set the stage for long-term investment in innovation so as to create new business opportunities," ECB said.