Brussels, 08/11/2012 (Agence Europe) - The European Central Bank says that because of the sovereign debt crisis, the eurozone's financial system is highly fragmented on a country-by-country basis despite encouraging signs observed since the ECB's OMT purchase plan was announced for sovereign debt. Speaking after the monthly meeting of the ECB Governing Council, ECB president Mario Draghi said there was a “major challenge ahead to overcome fragmentation. More than spreads, one should look at fragmentation of euro area and renationalisation of banking systems. And difference of costs of funding exceeding fundamentals.”
The European Central Bank decided to leave interest rates unchanged. Draghi explained: “Our policy is already very accommodative. Real interest rates are negative in a large part of euro area. Just think what we have done in just one year: severe rate cuts, higher reserve ratio, two LTROs. The OMT programme is easing market conditions.” The eurozone is in recession this year, but is expected to return to growth in 2013 (seeEUROPE 10725). Inflation is expected to remain above 2% in 2012, but drop below the 2% point at some point in 2013, in line with the ECB's medium-term objective.
Draghi said the OMT was helping to reassure the markets and listed a number of positive points, such as the return of international investors, successful debt emissions by Ireland and Portugal and the fact that Italy and Spain have already rolled over all their debt for 2012. The ECB president urged member states to continue with their budget measures and structural reforms, adding that eurozone nations were suffering because of bad politics or the lack of policies.
Spain. Commenting on Spain, Draghi said that decisions were for Madrid to take. He explained that a request for aid from the eurozone's bailout fund (the ESM) is a precondition for launch of the ECB's OMF programme, but was not enough in itself because the ECB acts independently. He said it was not possible to give the Spanish prime minister, Mariano Rajoy, assurances in advance that interest rates for Spanish debt would definitely fall. (MB/transl.fl)