Mario Draghi pledges to pump more into European banks if needed
Mario Draghi, president of the European Central Bank, has pledged to provide billions of more euros to banks in the single currency bloc to avert any future threat of a credit crunch.
The ECB pumped more than €1 trillion of liquidity into the banks through two long-term refinancing operations (LTROs) to stabilise financial markets, in December 2011 and February 2012,
The move has come to be seen as the first step towards bringing Europe’s crisis under control and was reinforced by Mr Draghi’s promise in July last year to do “whatever it takes” to save the euro.
Addressing the European Parliament on Monday, he said: “We are ready to use any instrument, including another LTRO if needed, to maintain short-term money market rates at a level which is warranted by our assessment of inflation in the medium-term.”
His fresh commitment is likely to allay any lingering concerns about the state of Europe’s banks, which face another stress test in the coming months.
His comments came amid signs of improvement in the eurozone economy. Business activity in the region picked up to a 27-month high in September, the closely-watched purchasing managers’ index (PMI) showed.
The composite PMI rose to 52.1, from 51.5 in August, where any reading above 50 indicates expansion. The biggest gain in activity was seen in the services sector, but manufacturing continued to improve as well.
However, recovery hopes were tempered by the slow pace of expansion. Chris Williamson, chief economist at Markit, which compiled the survey, said the PMIs suggested the bloc’s economy grew by 0.2pc in the three months to September, slower than the 0.3pc rebound from recession in the second quarter.
Meanwhile, European markets edged lower as traders awaited news from Germany after Chancellor Angela Merkel’s election victory over the weekend. Traders urged her to strike a coalition deal swiftly to stop bail-out fears spreading among the eurozone’s troubled nations.
Markets expect Ms Merkel’s Christian Democrats to go into partnership with the Social Democrats, the main opposition party, but observers noted that it took two months to negotiate an agreement last time the parties worked together.
Given the fragile eurozone, traders called for Ms Merkel to move fast. Peter Schaffrik, head of European rates strategy at RBC Capital Markets, said: “If finding a new government takes too long, markets might get jumpy as regards the stability of the German government, particularly with key European issues – the Portuguese, Irish and Greek programmes – coming up for a negotiation."