Brussels, 08/09/2011 (Agence Europe) - The European Central Bank has revised down its economic growth forecasts for the eurozone. In 2011, growth is now forecast of between 1.4% and 1.8% of GDP, and between 0.4% and 2.2% in 2012, explained ECB President Jean-Claude Trichet on Thursday 8 September. In June of this year, the ECB forecast that GDP in the eurozone would rise by between 1.5% and 2.3% in 2011 and between 0.6% and 2.8% in 2012 (see EUROPE 10395). The reduction is due to a slowing of growth in the global economy, worsening economic sentiment and the tension about eurozone sovereign debt, which the ECB feels will lead to a slowing of growth.
For inflation, the ECB forecasts for 2011 have not been changed, with price rises in the eurozone expected to be between 2.5% and 2.7%, and between 1.2% and 2.2% in 2012 (compared with the June forecasts of 1.1% to 2.3% for 2012). The ECB now feels that the dangers of inflation are in equilibrium, with raw material price rises and tax rises sending prices up, but the slowing economy acting to counteract this.
The ECB Governing Council therefore unanimously decided to leave the euro interest rates unchanged (1.5% for major refinancing operations, 2.25% for the marginal loan facility and 0.75% for deposits). Trichet did not respond to the reporters asking him whether any of the Governing Council had called for interest rates to be reduced.
Sovereign debt crisis. The ECB president said that further measures had been taken by some governments to meet their budget objectives (Italy, for example, see EUROPE 10447). “To ensure credibility, it is now crucial that the announced measures be frontloaded and implemented in full. Governments need to stand ready to implement further consolidation measures, notably on the expenditure side, if risks regarding the attainment of the current fiscal targets materialise”, commented Trichet. He called for structural reform and changes to the labour and services markets. Commenting on Italy, Trichet said that it was important that the targets set, like the return to a balanced budget in 2013, are retained, despite the disagreements among cabinet ministers. He refused to say that the ECB would continue to buy Italian bonds to keep down the costs of rolling over the country's debt. Trichet praised the action taken by Ireland, which, he said, was gaining credibility through its effective implementation of the austerity programme demanded in return for international aid.
In response to a journalist commenting on talk in Germany about returning to the Deutsche mark and comment on errors reportedly made by the ECB (namely buying up the bonds of struggling countries), Trichet pointedly called for recognition of the ECB's success in fighting inflation, having a better track record than Berlin. He said that the ECB had bought up sovereign debt during the worst financial crisis since 1945, and had done so in part due to the fact that eurozone countries had failed to apply the stability and growth pact because they had not carried out the necessary peer surveillance.
The ECB's monetary policy continues to allow unconventional measures for increasing the capital of banks. In this connection, he said that European banks didn't have liquidity problems. Proof of this, he said, was the fact that European banks can provide guarantees of a total of €13 trillion in return for cheap cash from the ECB, but they only provide some €500bn for the moment. The ECB admits, however, that some refinancing conditions are tight (referring perhaps to the mutual suspicion on the interbank markets. (M.B./transl.fl)