Draghi keeps door open to further interest rate cuts
EUROPEAN Central Bank President Mario Draghi kept the door open yesterday for further interest rate cuts, saying any decision would depend on economic data.
He also urged countries not to let up on efforts to balance their budgets even though savings measures can cause "social tensions", and said that governments should be involved in any bank resolution where taxpayer money is involved.
The ECB cut its key policy rate to a record low 0.75pc last week to shore up the eurozone economy, which is on the brink of recession with even powerhouse Germany showing some signs of weakness.
"We have to look at what the situation is, look at the data and the developments and then we'll make up our minds in the governing council about what next actions we'll do," Mr Draghi told the European Parliament when asked whether the ECB could continue reducing rates.
Even at 0.75pc, the ECB's main interest rate is higher than that of any of the other four leading central banks.
ECB executive board member Peter Praet said in Lisbon that while very low rates create problems if they are in place for a long period of time, there was no "taboo" on interest rates, implying that the bank had not ruled out additional rate cuts. Mr Praet said the crisis was more profound than in 2008, when the collapse of Lehman Brothers prompted credit markets to seize up globally.
Eurogroup finance ministers met yesterday, tasked with fleshing out a bare-bones agreement reached by EU leaders at a summit last month. With differences persisting between north European countries such as Finland and the Netherlands and southern states led by Italy and Spain, EU officials said no breakthroughs were likely this week.
Mr Draghi endured at times hostile questioning in the European Parliament, notably from German, Dutch and Finnish lawmakers concerned at the prospect of European bank bailouts using taxpayers' money.
German Finance Minister Wolfgang Schaeuble sought to defuse growing opposition at home by saying it would take time to establish a European bank supervisor and only once it was fully in place might ministers decide to allow direct recapitalisation of ailing banks by the eurozone's rescue fund.
Mr Schaeuble said he expected ministers to agree on a timetable for up to €100bn in aid for debt-stricken Spanish lenders.
Alongside Spain, eurozone ministers were also due to consider aid to Cyprus and whether to grant concessions to Greece, which has admitted it is missing its bailout programme targets.
EU leaders want to break the link between banks and sovereigns by not lumbering governments with debts for rescuing their lenders, making it harder for them to borrow.
Much depends on the ECB's role as banking supervisor, which will need to be grounded in European law. The European Commission is to propose such legislation, which is not expected until at least September.
Mr Draghi said it was not yet agreed which banks the supervisor would oversee, but to a large extent the ECB would be reliant on existing national expertise. (Reuters)