ECB ‘ready for all con­tin­gen­cies’ af­ter UK vote

Financial Mirror (Cyprus) - - FRONT PAGE -

Euro­pean Cen­tral Bank Pres­i­dent Mario Draghi said on Tues­day that the ECB is ready for ev­ery sce­nario af­ter Bri­tain’s ref­er­en­dum on EU mem­ber­ship on Thurs­day, but warned that liq­uid­ity was vi­tal to pre­vent in­vestor panic af­ter a vote for Brexit.

Against the back­drop of the tight race be­tween Leave and Re­main ahead of the June 23 vote, Draghi said that there were “ex­ten­sive con­sul­ta­tions” be­tween cen­tral bankers and the In­ter­na­tional Mon­e­tary Fund, but no plans or no com­mit­ments pre­pared to deal with the con­se­quences of the vote.

“It is dif­fi­cult to spec­u­late on one out­come over the oth­ers,” he said at the Euro­pean Par­lia­ment’s Com­mit­tee of Eco­nomic and Mon­e­tary Af­fairs.

But he added that the ECB “is ready for all con­tin­gen­cies” fol­low­ing the ref­er­en­dum.

The cen­tral banker did not give de­tails of any prepa­ra­tions. He also warned that it was hard to as­sess whether the ECB’s ac­tions would be enough to calm down tur­bu­lence trig­gered by a Brexit vote.

“It is very dif­fi­cult to fore­see the im­pact on the var­i­ous di­men­sions a vote in the United King­dom would have on the mar­kets and the eu­ro­zone economies,” he said.

“We monitor all rel­e­vant fi­nan­cial, le­gal but also po­lit­i­cal de­vel­op­ments”, to man­age and pre­pare for risk, he told MEPs in re­sponse to nu­mer­ous ques­tions.

Draghi said that in case of a Brexit, the first pri­or­ity would be to sta­bilise the mar­kets and pro­vide am­ple liq­uid­ity in or­der to avoid any in­vestors panic.

“We have swap lines with other cen­tral banks, and ex­ist­ing liq­uid­ity ar­range­ments are in place too,” he ex­plained.

Con­tin­gency plans are also be­ing drafted by the fi­nan­cial sec­tor, he said.

The head of Ger­many’s biggest len­der Deutsche Bank, John Cryan, warned on Tues­day that “the days lead­ing up to and fol­low­ing the ref­er­en­dum will se­verely test the cap­i­tal mar­kets”.

“I can nev­er­the­less as­sure you that we at Deutsche Bank are well pre­pared. And I have great con­fi­dence that the cen­tral banks will keep a close eye on the sta­bil­ity of the mar­kets,” he said in Ber­lin.

Draghi wel­comed the fact that the re­cov­ery gained mo­men­tum at the start of this year and that it is ex­pected to con­tinue at a “mod­er­ate” but “steady” pace over the next months.

In­vest­ment is picking up, thanks prof­its and bet­ter fi­nanc­ing con­di­tions.

How­ever, he pointed out that “un­cer­tainty re­mains high”, due to the “frag­ile” eco­nomic sit­u­a­tion and the geopo­lit­i­cal de­vel­op­ments, in­clud­ing the ref­er­en­dum in the UK.

Although in­fla­tion has started to re­cover, it is not ex­pected to reach its 2% target em­bed­ded in the ECB’s man­date in the

to

higher

cor­po­rate next three years.

Draghi’s hear­ing was on the eve of the launch­ing of the sec­ond round of ultra-cheap loans for banks to fa­cil­i­tate very cheap credit to house­holds and busi­nesses in a bid to rein­vig­o­rate weak eco­nomic growth.

His speech hap­pened af­ter Ger­many’s con­sti­tu­tional court ap­proved the ECB’s bond-buy­ing pro­gramme to fight against mar­ket tur­moil.

The Ger­man judges said that the Out­right Mon­e­tary Trans­ac­tions (OMT), which re­mains un­used, were le­gal un­der the coun­try’s con­sti­tu­tion.

The OMT was the out­come of Draghi’s pledge to do “what­ever it takes to save the euro” at the height of the cri­sis in the sum­mer 2012.

“Ger­many’s court de­ci­sion con­firms the rul­ing of the Court of Jus­tice of EU, which stated that the OMT pro­gramme is com­pat­i­ble with EU and falls within un­der our man­date”, Draghi stressed.

“While re­spect­ing the ECB’s in­de­pen­dence, the Euro­pean Com­mis­sion stands fully be­hind the ECB in de­liv­er­ing its man­date,” the EU ex­ec­u­tive said in a state­ment.

The ECB agreed on 6 Septem­ber to launch a new and po­ten­tially un­lim­ited bond-buy­ing pro­gramme to lower strug­gling eu­ro­zone coun­tries’ bor­row­ing costs and draw a line un­der the debt cri­sis.

ECB Pres­i­dent Draghi said the new plan, aimed at the se­condary mar­ket, would ad­dress bond mar­ket dis­tor­tions and “un­founded” fears of in­vestors about the sur­vival of the euro.

Draghi said the ECB would only help coun­tries that signed up to and im­ple­mented strict pol­icy con­di­tions, with the eu­ro­zone’s res­cue fund also buy­ing their bonds, and prefer­ably with the IMF in­volved in de­sign­ing and mon­i­tor­ing the con­di­tions.

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