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ECB monetary policy ‘accommodative’ but governments need to play their share

Thursday, April 4th 2013 - 22:13 UTC
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The ECB has given a lot of support for the Euro-area economy, said Dragui The ECB has given a lot of support for the Euro-area economy, said Dragui

The European Central Bank cannot step into the breach left by a lack of political action to solve the region's debt crisis, but is ready to do whatever it can to help, ECB chief Mario Draghi said on Thursday.

“We cannot replace lack of capital in the banking system or the lack of actions by governments,” Draghi told a news conference after the ECB left its main interest rate at a historic low of 0.75% for the ninth month in a row.

Throughout the long-running crisis -- which appeared to have abated recently until political gridlock in Italy and the crisis in Cyprus sent shockwaves through financial markets once again -- the ECB has never hesitated to act as firefighter.

It has slashed its key interest rates, pumped more than 1.0 trillion euros (1.3 trillion dollars) into the banking system to avert a credit crunch and sought to tame borrowing costs in worst-hit countries by buying up their sovereign bonds.

The most recent version of the bond-buying program in particular, known as OMT, is credited with restoring calm to the markets for an extended period, even though it has not actually been implemented so far.

“All this has certainly given a lot of support for the Euro area economy,” Draghi said.

Nevertheless, “the buck doesn't stop with the ECB,” and it was also up to governments to get their finances and their economies in order, he insisted.

The best and “most stimulative” way would be for governments “to pay the arrears” or their outstanding debt, Draghi said. “The ECB cannot replace governments on that front, or on structural reforms,” he added.

At the same time, the ECB was willing and ready to act and looking at all policy options, both standard and non-standard, to help resolve the crisis, Draghi insisted.

“We are ready to act within our mandate,” he said, “we discussed a variety of measures. We have to be aware of what we can do and what we cannot do,” he said.

The ECB was open to taking on board the experiences of other countries in trying to solve the Euro zone's problems, he added.

“We will certainly look at other countries' experiences, what is feasible, institutionally acceptable and effective,” he said. “We are thinking 360 degrees,” Draghi said.

The ECB believed that “the improvements in financial markets seen since last summer should work their way through to the real economy, notwithstanding recent uncertainties,” Draghi admitted.

However the central bank's forecast for a “gradual recovery” in the second half of this year was “subject to downside risks.”

“Against this overall background our monetary policy stance will remain accommodative for as long as needed,” Draghi vowed.

Categories: Economy, International.

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