Draghi’s tone on Greece rings conciliatory
FRANKFURT • Europe has lost some growth momentum and market volatility is here to stay, the European Central Bank said on Wednesday, pledging to see through its money printing scheme until its job of lifting the economy is done.
In remarks after the bank left rates on hold at record lows, ECB president Mario Draghi also urged a deal with Greece, which is facing default without aid, in order to keep it in the currency bloc.
In what may be seen as a concession, Draghi said the eventual deal, now under negotiation, should take into account Greece’s economic decline, particularly when setting fiscal targets that Athens argues are too demanding.
But he made it clear that the ECB would not t i de over Greece’s finances in the meantime by loosening restrictions on short-term funding before eurozone backers first release loans.
“The Governing Council of the ECB wants Greece to stay in the eurozone,” Draghi told a news conference.
“The current downgraded growth perspectives of the Greek economy should be taken into account in determining what the appropriate budgetary surplus figures should be.”
Investment bank Barclays said the tone of Draghi’s comments, in which he referred to ‘social fairness,’ may point to a more conciliatory tone in the ECB’s stance.
“We think that Draghi’s choice of words in his re- sponse, including on ‘social fairness,’ signals the willingness for Europe to also consider Greece’s needs,” Barclays said.
Still, edgy bond markets sold off on Draghi’s comment, anticipating a more reassuring message, and normally rock-solid German 10-year yields continued their climb.
Though deflation has ended and prices rose faster than markets expected in May, alleviating the bank’s biggest headaches, Draghi admitted that growth prospects have dimmed and the bank lowered its 2017 gross domestic product growth forecast.
“There has been a loss or some loss of momentum, modest I would say ... mostly due to weakening of the economies outside the euro area, emerging markets mostly,” he said.
Still, he said economic growth would broaden and risks are now more balanced, due in part to the bank’s onetrillion-euro plus asset buying program, known as quantitative easing, which the ECB could in theory expand, even if such an option is not being discussed.
Early indications are that the scheme is working. Data this week showed euro inflation turned positive in May as the closely watched core rate jumped to 0.9 per cent.
Inflation next year is seen at 1.5 per cent and then rising to 1.8 per cent in 2017, in line with earlier projections, but only if the money printing program is carried out in full, Draghi said.