Brussels, 04/04/2012 (Agence Europe) - The European Central Bank wants member states and banks to take advantage of the relative calm on the money markets since the ECB's LTRO (injection of cash) so that member states can apply the budget pact and keep up the momentum of their structural reforms, and the banks can deleverage and recapitalise. Speaking after the Governing Council meeting at the bank on Wednesday 4 April, the ECB president Mario Draghi said both of the banks' long-term refinancing operations (LRTOs) provided a window of opportunity for governments to undertake budget consolidation and structural reforms and the period of relative peace should be used by European banks to deleverage in an orderly manner and raise any missing capital.
In December 2011 and February 2012, two ECB LTROs enabled banks in Europe to borrow money over the medium term (3 years) at a very low rate. The first LRTO saw 520 banks raise nearly half a trillion euros (see EUROPE 10521), the second enabled more than 800 banks to borrow €530 billion.
Explaining that it would take time before the impact of the measures emerged, Draghi said that struggling banks would not become dependent on ECB handouts. One thing is certain, he said, the two LTROs had prevented a credit crunch and eased the pressure on banks. He said that they had not, and would not, push inflation up. Going by the renewal of fear among investors seen when Spain last rolled over some of its debt, Draghi said the effect of the LTROs was not fading, but the markets wanted member states to focus on the fundamentals (growth, deficits and public debt).
No change in interest rates. The ECB decided on 4 April to leave euro interest rates unchanged: 1% for the main refinancing operations, 1.75% for the marginal loan facility and 0.24% for the deposit facility. Inflation is expected to remain above 2% in 2012 due to the hikes in fuel prices, but fall below 2% at the start of 2013, said Draghi. After shrinking by 0.3% in the fourth quarter of 2011, economic growth in the eurozone is expected to return in 2012, but remain weak.
Asked about his earlier statement that the European social model was dead, Draghi said it had to be reformed. He said he believed in solidarity and insertion, but the systems in place in some social models (not at the EU level, but in some member states) were unaffordable. As an illustration, he said that the only people hit by a tenuous situation on the labour markets were young people. (MB/transl.fl)