It’s up to you to solve debt crisis, says bank president
After the ECB left interest rates at 1 per cent yesterday, President Mario Draghi played down prospects of a third round of long-term money creation and said it was wrong for monetary policy to fill a policy vacuum created by others.
The respite the ECB bought the eurozone at the beginning of the year by injecting more than 1 trillion euros into its banking system with twin three-year loan operations (LTROs), has faded with borrowing costs for troubled countries such as Spain soaring once again.
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Hide Ad“The issue now is whether these LTROs would actually be effective,” Mr Draghi said.
“Some of these problems in the euro area have nothing to do with monetary policy... and I don’t think it would be right for monetary policy to fill other institutions’ lack of action.”
Mr Draghi said the decision to leave rates unchanged was taken by “broad consensus”, suggesting it was not unanimous. He said a few members, but not many, of the bank had wanted a rate cut.
Although flagging the increasing threat to the currency area’s economy, new ECB growth forecasts for 2012 were unchanged – in a -0.5 to +0.3 per cent range.
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Hide AdThe prediction for the following year was barely changed either.
“The economic outlook for the euro area is subject to increased downside risks relating in particular to a further increase in the tensions in several euro area financial markets and their potential spillover to the euro area real economy,” Mr Draghi said.
Increasingly alarmed by signs Spain’s banking crisis is opening a new front in the debt crisis, EU leaders have started considering the form of economic union needed to make the bloc durable as well as more immediate measures to help Madrid.
But that end-game is still months or years away and in the meantime investors view the ECB as the institution with the firepower to keep the crisis in check.
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Hide Ad“The Governing Council very much welcomes leaders at the last European Council meeting agreeing to step up their reflections on the long-term vision for economic and monetary union,” Mr Draghi said.
“The Governing Council considers this a highly important step.”
Markets were unsure how the ECB would react to a recent wave of weak economic data, knowing that the bank also wants to keep the pressure on eurozone leaders to tackle the crisis more effectively.
The euro was steady at $1.25 after the decision.