Thursday 27 October 2016

Draghi set for action to calm nervy investors

Sarah Collins in Brussels

Published 16/02/2016 | 02:30

ECB chief Mario Draghi at the EU in Brussels yesterday. Photo: Reuters
ECB chief Mario Draghi at the EU in Brussels yesterday. Photo: Reuters

European Central Bank chief Mario Draghi has promised to intervene to calm market jitters over Eurozone lenders if the situation does not improve by next month.

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Speaking to EU parliamentarians yesterday, Mr Draghi said that the ECB "will not hesitate to act" at its March 10 meeting if oil prices or banks continue to weigh on the recovery, reiterating a pledge he made in January.

He said the bank could adapt its €700bn asset purchase programme "to the changing circumstances of the market", if needed.

But he insisted that Eurozone governments act in tandem to stimulate growth, by boosting investment and lowering taxes.

"In order to make the euro-area more resilient, contributions from all policy areas are needed. The ECB is ready to do its part," he said. "In parallel, other policies should help to put the euro-area economy on firmer ground. It is becoming clearer and clearer that fiscal policies should support the economic recovery through public investment and lower taxation."

Mr Draghi said that without extraordinary ECB support since 2012, the recovery would have been much weaker.

"Monetary policy has been the only truly stimulative policy in the last four years," he told MEPs in the European Parliament's economic and monetary affairs committee yesterday. "Half of the recovery seen in the last two years can be ascribed to our monetary policy."

Last week saw renewed market volatility, particularly on Eurozone bank shares, which Mr Draghi said was down to slowing growth in emerging markets and falling commodity prices, as well as "perceptions" that new financial regulations and lower interest rates would drag down bank profits.

In January new EU rules that will force bank shareholders and bondholders to foot part of the bill for future bank rescues entered into force - a fact that some analysts say has contributed to the market jitters.

But Mr Draghi said the rules were "a change for the better", insisting that the reforms had also increased the amount and quality of cash that banks hold to offset future losses. However, he acknowledged that some Eurozone banks still face "a number of challenges", including a legacy of non-performing loans.

Meanwhile, Mr Draghi said that the UK's ongoing renegotiation of its position in the EU - which is set to come to a head at a summit of EU leaders this week in Brussels - "should not hamper any further integration" in the Eurozone.

Irish Independent

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