Brussels, 12/01/2012 (Agence Europe) - On Thursday 12 January, the president of the European Central Bank, Mario Draghi, welcomed the progress in drawing up a budget discipline treaty that he the wants 26 member states involved to sign on 30 January (see EUROPE 10529). He said it would be great news if the deal could be signed on 30 January rather than in March. Earlier this week, the French president, Nicolas Sarkozy, and the German chancellor, Angela Merkel, called for the deal to be signed on 1 March (see EUROPE 100527).
The ECB comments: “The new fiscal pact, comprising a fundamental restatement of the fiscal rules (…), is an important contribution to ensuring the long-run sustainability of public finances in the euro area countries.” The wording of the rules needs to be “unambiguous and effective.”
EFSF. Draghi called for an urgent expansion of the European bailout fund, adding that a partnership deal would soon be signed by the European Central Bank and the European Financial Stability Facility (EFSF). All ways of increasing the fund's firepower are welcome, he said. The eurozone countries are due to set up leverage to enable the EFSF to borrow up to a trillion euros using an instrument backed by the IMF. Europe will increase its contribution to the IMF by €200 billion to help set up credit lines for struggling countries.
Monti said the ECB had seen very important progress in budget consolidation in some eurozone countries that was starting to reduce the interest rates charged on struggling countries' sovereign debt. He said budget consolidation is inevitable, necessary and crucial and should be accompanied by structural reforms to encourage competitiveness and introduce flexibility on the labour markets.
Commenting on the ECB's recent wave of three-year, cheap loans to eurozone banks, Draghi said it would help them manage their cash and loans more effectively so that they can focus on financing the real economy. He said that the banks taking advantage of the cheap cash were the same ones as deposit funds with the ECB, admitting that the inter-bank lending system is not working properly.
Hungary. The ECB says it is very concerned about events in Hungary, where Viktor Orban's government has introduced political control over the central bank. Draghi said this ran counter to the spirit of the treaty and central bank independence.
The ECB unanimously decided to leave euro interest rates unchanged at 1%, the lowest level ever. The bank believes inflation will remain above 2% for several months to come but will then return to the ECB's target of just under 2%. (MB/transl.fl)