in Frankfurt
European Central Bank president Mario Draghi struck a cautious note yesterday after the bank left interest rates unchanged at 0.5 per cent as expected.
“I’m very, very cautious about the recovery. I can’t share enthusiasm, it’s just the beginning. The shoots are still very, very green,” the ECB president said as he attempted to reassure investors that the low interest rate environment would be maintained.
This is despite a recent rise in money market rates, which are the starting point for how much banks charge consumers and firms for loans.
Mr Draghi said he was “ready to act” to address the issue of rising money market rates. “We will remain particularly attentive to the implications that these developments may have to the stance of monetary policy,” he said in a press conference following the monthly rate-setting meeting.
The recent spate of positive economic data from Europe, as well as expectations that the US Federal Reserve may ease off its bond-buying programme, has pushed money market rates higher.
The ECB yesterday upgraded its forecast for this year, predicting that the euro zone economy would contract by 0.4 per cent in 2013, compared to the 0.6 per cent foreseen in June.
However, it downgraded its outlook for next year, forecasting growth of 1.0 per cent compared to 1.1 per cent three months ago.
Banking union
Mr Draghi said the ECB would unveil plans for its asset quality review of banks' balance sheets next month. The ECB is set to take supervisory control over a swathe of euro zone banks next year, as part of the so-called banking union.
Asked about the possible options if next year's stress tests reveal that some banks need more capital, Eurogroup president Jeroen Dijsselbloem told MEPs in Brussels that, in the first instance, banks would look to capital markets and then to a restructuring of the company, before the use of any public money would be considered. "A minimum amount of bail-in will have to be applied," he added.
Mr Draghi also played down suggestions this week that Frankfurt was at odds with Brussels over the Single Resolution Mechanism – the proposal for a bank resolution body announced by the European Commission in June.
'Misunderstood'
Comments by ECB board member Jörg Asmussen earlier this week, which suggested that the ECB, rather than Brussels, should have final say on when a bank is wound down, had been "misunderstood", he said.
“The supervisor makes the assessment, in total independence, and then hands this assessment to the resolution authority,” Mr Draghi said.
Earlier, Mr Dijsselbloem denied that there had been a row-back on the plans for implementation of the banking union amid concerns from Germany that the introduction of a more integrated banking system for Europe was proceeding too quickly, and misgivings from Berlin about the Single Resolution Mechanism.
Banking union was a matter of “urgency”, he said. “It is important that politically we do what we promise.”
He also said that further assistance may be necessary for Greece when its bailout programme finishes at the end of next year. Speculation is mounting that Greece may need a third bailout as the country faces a €10 billion-plus cash shortfall.
