Brussels, 06/03/2014 (Agence Europe) - In the light of the slow pace of recovery, the European Central Bank (ECB) will continue its quantitative easing for as long as is necessary.
“Recovery is proceedings in line with our preceding assessment”, explained the president of the ECB Mario Draghi on Thursday 6 March and, to this end, the ECB will keep key interest rates unchanged “for an extended period of time” even when recovery picks up. Draghi said the ECB had decided not to change the euro interest rate due to improvements in the consumer confidence indicator, a stabilisation of unemployment or a fall in unemployment (as seen in Portugal) and timid convergence of yields between Germany and peripheral eurozone nations.
The ECB unveiled on Thursday its two-year forecasts for the eurozone, expecting growth to pick up at the following rate: 1.2% in 2014, 1.5% in 2015 and 1.8% in 2016. Annual inflation will remain at the current level for the next few months and then pick up in 2015 and 2016, but will remain below 2% (1% in 2014, 1.3% in 2015 and 1.5% in 2016). Draghi says around 0.4% of inflation is due to the euro exchange rate, noting the importance of this and pointing out that the ECB does not have powers when it comes to exchange rates. The variation in energy prices has also impacted on inflation. Draghi said that two-thirds of the fall in inflation was due to the fall in energy prices.
Ukraine. Asked how the crisis in Ukraine would affect the European economy, Draghi said that that “from a technocratic viewpoint, the amount of trade capital flows and interconnection were not strong enough to suggest strong contagion from that region”. The “geopolitical situation”, on the other hand, “could potentially generate unforeseen consequences”. Commenting on statements by the head of Poland's central bank, Marek Belka, that the Ukrainian crisis meant that there should be a debate about whether Poland should quickly join the euro, Draghi said the eurozone was “an island of stability and that makes the area look attractive”.
Together with the European Banking Authority, the ECB is currently carrying out an asset quality review (AQR) of banks in the eurozone before the ECB becomes responsible for the new bank supervision mechanism (SSM) in the eurozone in November. “Zombie banks don't lend. Only possible path is to cure and be surgical if needed. That is the purpose of AQR”, explained Draghi.
The ECB president reiterated his position on the current talks between the member states and the European Parliament on the bank resolution mechanism (SRM). He said the ECB felt that “mutualisation had to be sped up” and “governance should be effective so that swift decisions can be taken” and the decision to wind up a bank can be taken in a matter of hours. He said a backstop was needed for the SRF to give it enough money in its first years of operation, either through a credit line from the ESM or through access to the market with national guarantees. Draghi recommended a strict separation between SSM assessment and SRM assessment. (MB)