ECB ready to take stronger measure
Source: Agencies |
December 2, 2011, Friday
|
Print Edition
Print Edition
THE new head of the European Central Bank signaled yesterday it was ready to take stronger action to fight Europe's debt crisis if political leaders agree next week on much tighter budget controls in the 17-nation eurozone.
Speaking a day after the world's major central banks took joint action to provide cheaper dollar funding for starved European banks, Mario Draghi painted a dark picture of the state of the banking system.
"What I believe our economic and monetary union needs is a new fiscal compact - a fundamental restatement of the fiscal rules together with the mutual fiscal commitments that euro area governments have made," he told the European Parliament.
"We might be asked whether a new fiscal compact would be enough to stabilize markets and how a credible longer-term vision can be helpful in the short-term. Our answer is that it is definitely the most important element to start restoring credibility.
"Other elements might follow, but the sequencing matters."
Draghi did not spell out what action the ECB might take, but it is under huge political and market pressure to step up purchases of eurozone government bonds or to lend money to the IMF to support ailing Italy and Spain.
In response to lawmakers' comments, he added that the ECB had scope to act within the European Union treaty and the most important thing was to make sure that frozen credit channels start to work again.
In the short-term, economists expect the ECB to relieve pressure on banks and an economy heading into recession by announcing longer-term cheap liquidity tenders with easier collateral rules and cutting interest rates next week.
Draghi, who faces some of the toughest decisions in the euro's 12-year history after just one month in the job, said the ECB was aware many European banks were in difficulty because of stress on sovereign bonds, tight inter-bank funding markets and scarce collateral.
Speaking a day after the world's major central banks took joint action to provide cheaper dollar funding for starved European banks, Mario Draghi painted a dark picture of the state of the banking system.
"What I believe our economic and monetary union needs is a new fiscal compact - a fundamental restatement of the fiscal rules together with the mutual fiscal commitments that euro area governments have made," he told the European Parliament.
"We might be asked whether a new fiscal compact would be enough to stabilize markets and how a credible longer-term vision can be helpful in the short-term. Our answer is that it is definitely the most important element to start restoring credibility.
"Other elements might follow, but the sequencing matters."
Draghi did not spell out what action the ECB might take, but it is under huge political and market pressure to step up purchases of eurozone government bonds or to lend money to the IMF to support ailing Italy and Spain.
In response to lawmakers' comments, he added that the ECB had scope to act within the European Union treaty and the most important thing was to make sure that frozen credit channels start to work again.
In the short-term, economists expect the ECB to relieve pressure on banks and an economy heading into recession by announcing longer-term cheap liquidity tenders with easier collateral rules and cutting interest rates next week.
Draghi, who faces some of the toughest decisions in the euro's 12-year history after just one month in the job, said the ECB was aware many European banks were in difficulty because of stress on sovereign bonds, tight inter-bank funding markets and scarce collateral.
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