ECB's Draghi sees signs of stabilizing eurozone economy
Source: Agencies |
January 11, 2013, Friday
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Print Edition
Print Edition
EUROPEAN Central Bank President Mario Draghi yesterday said the struggling eurozone economy has shown signs of stabilizing in recent days but remains short of a turning point and will only return to gradual growth later this year.
He spoke after the bank's 23-member governing council kept its key interest rate at a record low of 0.75 percent.
A further cut would in theory encourage more economic activity by making it easier for consumers and businesses to borrow, spend and invest. But Draghi said at a post-meeting news conference that rates were already low enough to spur growth - and would contribute to a gradual rebound.
Draghi said some economic indicators "have broadly stabilized," although at low levels, and financial markets have steadied. "Economic activity should gradually recover" later this year, he said.
But, he added, "to define a turning point you need a lot of things beside financial market stabilization." For that, the eurozone needs "greater strength in the economy."
The ECB sets monetary policy for the eurozone and its 333 million people. Its key move to ease the eurozone's crisis over too much government debt was an offer finalized in September to buy the bonds of heavily indebted countries, on condition that they tap a European financial aid program and promise to reduce their deficits. No country has asked for the help, but the mere offer has seen dramatic falls in bond market borrowing costs for Spain and Italy.
European leaders are also setting up a new system to have the ECB monitor European banks centrally. The hope is that greater controls will keep banks' financial troubles from requiring national governments to make expensive bailouts that overwhelm public finances.
All these steps have helped calm fears that the eurozone will break up or suffer a renewed financial crisis through a government being unable to pay its debts. Now the focus has turned to economic growth, or rather the lack of it. The eurozone economy shrank in the second and third quarters, technically putting it in recession, and most think the fourth quarter will be no different when figures come out next month.
Draghi ticked off a list of improvements. They included lower bond market borrowing costs for governments, reflecting higher confidence they can pay their debts; rising stock markets, and a flow of deposits back into banks in the most troubled countries. Greece, Ireland, and Portugal have taken bailout aid from other countries and the International Monetary Fund. Cyprus is now negotiating one.
It is now up to governments to get their economies to grow, Draghi said.
He spoke after the bank's 23-member governing council kept its key interest rate at a record low of 0.75 percent.
A further cut would in theory encourage more economic activity by making it easier for consumers and businesses to borrow, spend and invest. But Draghi said at a post-meeting news conference that rates were already low enough to spur growth - and would contribute to a gradual rebound.
Draghi said some economic indicators "have broadly stabilized," although at low levels, and financial markets have steadied. "Economic activity should gradually recover" later this year, he said.
But, he added, "to define a turning point you need a lot of things beside financial market stabilization." For that, the eurozone needs "greater strength in the economy."
The ECB sets monetary policy for the eurozone and its 333 million people. Its key move to ease the eurozone's crisis over too much government debt was an offer finalized in September to buy the bonds of heavily indebted countries, on condition that they tap a European financial aid program and promise to reduce their deficits. No country has asked for the help, but the mere offer has seen dramatic falls in bond market borrowing costs for Spain and Italy.
European leaders are also setting up a new system to have the ECB monitor European banks centrally. The hope is that greater controls will keep banks' financial troubles from requiring national governments to make expensive bailouts that overwhelm public finances.
All these steps have helped calm fears that the eurozone will break up or suffer a renewed financial crisis through a government being unable to pay its debts. Now the focus has turned to economic growth, or rather the lack of it. The eurozone economy shrank in the second and third quarters, technically putting it in recession, and most think the fourth quarter will be no different when figures come out next month.
Draghi ticked off a list of improvements. They included lower bond market borrowing costs for governments, reflecting higher confidence they can pay their debts; rising stock markets, and a flow of deposits back into banks in the most troubled countries. Greece, Ireland, and Portugal have taken bailout aid from other countries and the International Monetary Fund. Cyprus is now negotiating one.
It is now up to governments to get their economies to grow, Draghi said.
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