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'Animal spirits' could get Europe out of a hole

For Europe to regain its confidence and encourage investment, the region needs to be able to fire up the "animal spirits" of investors, Benoît Cœuré, an executive board member of the European Central Bank (ECB), told CNBC.

Speaking to CNBC on the sidelines of the IMF/World Bank's annual meeting in Lima, Peru, Cœuré said that the central bank was positive about the region's recovery but that investment needed to follow.

"From an ECB perspective; we don't want to focus too much on the short-term ups and downs. What we see is a steady recovery momentum in the euro zone…we are seeing reforms finding their way into the economy in the periphery of Europe, at different paces, at different rhythms but yes reforms are working, they are delivering," he said.

Lion statue in Trafalgar Square, London
Tim Graham/Getty Images
Lion statue in Trafalgar Square, London

European economies might be improving in terms of growth but the figures are still modest. The 19-member euro zone grew a miserly 0.3 percent in the second quarter, from the previous one, and the 28-member European Union fared little better, growing 0.4 percent in the same period.

Years of crisis have been coupled with political uncertainty, sparked by a public backlash against austerity in countries like Greece, that have also left their mark on the region and on investment with many investors nervous about more upheavals.

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As such, Coeure said the a lack of investor confidence was a residual problem for Europe.

He agreed that uncertainty over the region's recovery was evident in "the lack of investment that we are (seeing) today in Europe."

"We want investment to come back and investment is about confidence. Investment is about animal spirits, so you need these animal spirits to gather and to show up and for that you need reforms in countries," he added, saying that there were "very high expectations" of the region that it had to live up to.

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The term "animal spirits was first used by economist John Maynard Keynes in 1936 to describe the human emotion that drives consumer confidence.

Cœuré said that institutions in Europe had done their part to stabilize the economic backdrop, such as creating a banking union to instil more homogeny and rules into the European financial sector, but that individual states needed to do their bit.

It was up to European governments, some of whom were slow to implement reforms to boost growth, competitiveness and labor markets, to "get their act together and to reform, to do tax reform, to do regulatory reform, to instil confidence into the business community," the ECB board member added.

- Written by CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt. Follow us on Twitter: @CNBCWorld