Brussels, 08/05/2014 (Agence Europe) - In June 2014, the European Central Bank (ECB) will announce new measures to tackle the low level of inflation in the eurozone, once it has updated figures. No details have yet been forthcoming about the form the measures might take.
The head of the ECB, Mario Draghi, said in Brussels on Thursday 8 May that there was “consensus over being dissatisfied with the weak level of inflation and not being resigned to accepting this as a fact of nature”. He rarely makes such explicit comments. By June, the ECB will have the new figures it needs to take the most appropriate kinds of monetary measures.
Draghi, who used to be the governor of Banca d'Italia, put forward a number of reasons for making the announcement. Even though economic recovery is picking up, it remains modest and is spreading slowly. Downside risks for growth include a possible reduction in consumption outside the EU, geopolitical risks connected with the Ukrainian crisis and the high euro exchange rates, which is a source of deep concern in and of itself.
In April, eurozone inflation stood at 0.7%, up slightly on the previous month's 0.5%. The ECB's job is to keep inflation just below 2% and the bank expects inflation to remain at a low level until it starts to gradually rise in 2015, not reaching the target of just below 2% until the end of 2016. Against the backdrop of low growth and the high euro exchange rate, Draghi explained the bank's unanimous view that it is prepared to use non-conventional means to deal with the risk of too long a period of low inflation.
What measures might the ECB take next month? Draghi said the Governing Council had discussed all possible short- and medium-term instruments. It might raise interest rates (which it left untouched on Thursday) and may even introduce negative interest rates for deposits at the ECB by banks. Other options include a massive, possibly targeted, injection of liquidity or a private and/or public bond purchase scheme on the money markets. It might take some time to prepare a European quantitative easing of this nature.
European bourses rose, as did the euro against the dollar, upon the announcement on Thursday afternoon.
Ukraine. The ECB president talked about the geopolitical tension in Ukraine, acknowledging that the influx of capital into Europe from along its eastern borders was pushing the value of the euro up. Draghi did not see any great problem with the fact that some of this capital was ending up in Cyprus, but said he did not have any figures for the amounts involved. A special group has been set up at the European Systemic Risk Committee and also at a number of central banks to monitor the impact of the Ukrainian crisis on the eurozone.
Quizzed about the importance of voting in the European elections on 25 May, Draghi said voters should look beyond national borders and the temptation of a nationalist vote. He said the crisis that Europe had gone though would not have been as tough if there had been more integration in Europe. He ignored a question about whether he favoured the idea of a permanent chair of the Eurogroup. The current head of the Eurogroup, Dutch Finance Minister Jeroen Dijsselbloem, attended the Governing Council meeting (see related article). (MB)