ECB's Draghi tells Cabinet to fix ailing bank sector more quickly
Europe holds interest rates at 0.75pc in face of recession
Published 08/03/2013 | 05:00
Ireland is making significant progress on the bailout commitments but more needs to be done to fix our banks, the European Central Bank president Mario Draghi said.
Mr Draghi, who left interest rates unchanged at 0.75pc at the ECB's monthly meeting, also heaped pressure on officials here to restart selling longer-term debt, such as 10-year bonds, on the markets.
Staff at the ECB cut their forecast for economic growth this year, saying it will be between 0.1pc and 0.9pc.
He dismissed any suggestion that the ECB might take a step back from the so-called troika – of the European Commission, International Monetary Fund (IMF) and ECB – that oversees bailouts here and in Greece and Portugal.
He made the comments at the monthly press conference in Frankfurt held after governors meet to discuss monetary policy for the 17 countries in the euro area.
Asked if there was a danger that the Irish budgetary adjustment could suffer a "relapse" before the bailout is due to finish at the end of this year, he warned against complacency.
He named the banks as the main risk to a successful end to the bailout.
"The Irish Government has undertaken very significant progress on several fronts. I never tire of telling people this, but further action is needed especially on the banking front," he said. "It is not the time to rest or be complacent."
The ECB will not buy Irish government bonds, or those of other countries, if that is just to enhance their return to the markets, he said.
"Open Market Transactions (OMT) is not meant to help countries return to the markets," he said.
However, he did not rule out the possibility of the ECB supporting the price of Irish government bonds on the market through such bond-buying deals, around the same time as the country is returning to fully meeting its borrowing needs on the markets.
The central bank will be able to help if Ireland is back in the markets in a meaningful way, including being able to issue new debt with a mix of maturities – known as "issuing along the yield curve" in market jargon.
That means there is real pressure on the National Treasury Management Agency (NTMA) to borrow new 10-year duration IOUs, so that the Government will have the option of calling on ECB bond support if required in 2014.
Mr Draghi, who is Italian, said there had not been a big reaction in the markets to the results of Italy's general election, which were inconclusive but saw most voters reject the preferred European Union formula of beating the financial crisis through spending cuts and tax hikes.
"Markets after some excitement immediately after the elections have now reverted back, more or less, to what they were before," Mr Draghi told a news conference after the ECB held its benchmark interest rate at a record low.
"You have seen certainly that the contagion to other countries has been muted this time, contrary to what might have happened about a year and a half ago. And this is another positive sign," Mr Draghi added.