Brussels, 05/07/2012 (Agence Europe) - On Thursday 5 July, the ECB unanimously decided to cut the eurozone interest rate to a new low on Wednesday 11 July in order to kickstart the economy. On 11 July, the marginal loan facility and deposit facility interest rates will fall by 0.25% each to 1.5% and 0.0% respectively, but the ECB did not mention any special lending or cheap loans for banks to boost the economy.
“Euro area annual HICP inflation was 2.4% in June 2012. On the basis of current futures prices for oil, inflation rates should decline further in the course of 2012 and be again below 2% in 2013”, said ECB president Mario Draghi.
European summit. Some commentators say the reduction of interest rates amounts to a gift to Europe's leaders after the eurozone summit (see EUROPE 10645), which decided that the EFSF and ESM bailout funds can buy up sovereign bonds of countries that are too big to fail, Italy and Spain, for instance, and which are carrying out the necessary macroeconomic and budget reforms but which are being picked on by the markets and finding it difficult to roll over their debt. The summit also decided to boost economic and monetary union, starting with a banking union. “Leaders showed this is monetary union meant to last. They have started identifying an end-point, a goal, and started drafting a path to this goal. These are conditions to be met in order to undertake the journey together”, said Draghi.
Integrated banking supervision. The 17 have decided that the ECB should become a single banking supervisor of eurozone banks by the end of 2012. Draghi listed the principles which will form the basis of ECB action: the bank will act in total independence and without taking any risks to the bank's reputation; any “contamination” between the banking supervisor and monetary policy will have to be avoided and the ECB will closely cooperate with supervisors because it is at the latter's level that “know-how, competency, history and tradition” are located. Draghi also advocated an accompaniment to enhancing EMU through increased democratic legitimacy but did not provide any further details on this matter. He did not specify whether integrated banking supervision would apply to all eurozone banks or just those of a size that can have a systemic impact.
Once integrated banking supervision is in place, rescue funds would be able to directly recapitalise banks in difficulty, without this capital support negatively affecting the debt of the country concerned. Nonetheless, if Spain needs capital to get its banks back onto a sound financial footing before the mechanism is in place, the market will be able to absorb public issues of securities to ensure continuity, before activation of the rescue fund, explained Draghi. He considers that the fact that all these solidarity measures are subject to conditions underpins their credibility. (MB/transl.fl)