Thursday

30th Mar 2017

ECB will not become bank of last resort, Draghi says

  • 'Super Mario' has failed to impress economists such as Sony Kapoor (Photo: European Parliament)

In his highly anticipated first appearance as head of the European Central Bank, Mario Draghi Thursday (3 November) indicated that there will be no radical policy change under his watch, in particular ruling out becoming the lender of last resort for eurozone governments.

"What makes you think that to become the lender of last resort for governments is actually the thing that you need to keep the eurozone together?" he said in response to a question on the issue following a meeting of the eurozone bank's governing council.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

"No I don't think that is in the remit of the ECB. The remit of the ECB is maintaining price stability over the medium term," he added.

Some commentators suggest the eurozone debt crisis has deteriorated to such an extent that only blanket coverage by the ECB, which theoretically has an unlimited amount of money, can stop markets from further driving up government borrowing costs - already at almost unsustainable levels in Italy, the eurozone's third largest economy.

The eurozone's bail-out fund with its €440 billion in firepower - which the region hopes can be leveraged to €1 trillion following an agreement of eurozone leaders last week - is widely seen as too small to deal with the problem.

Draghi also dampened hopes of more aggressive buying of government bonds - a policy started by his predecessor Jean-Claude Trichet - by saying the bank's programme to buy government sovereign debt is "temporary" and "limited in its amount."

The Italian, who took up the ECB reins on Tuesday, surprised markets by lowering the key interest rate by 25 basis points to 1.25 percent.

He said that Europe's financial crisis and a slowdown in growth mean the eurozone faces an "environment of high uncertainty." The rate cut is aimed at preventing the economic crisis from worsening still further, with Draghi predicting "slow growth" heading towards a "mild recession" by the end of the year.

The move took markets and analysts by surprise, with the bank traditionally keen to focus on keeping down inflation rather than boosting growth. Draghi predicted that inflation would only come below two percent over the course of next year.

Greece and the eurozone

Greece was also the focus of several questions to the ECB chief, with talk of it leaving the eurozone gaining traction after a surprise announcement earlier this week that it could hold a referendum on its second bail-out programme.

Draghi would not be drawn to comment on Athens' possible exit, noting only that leaving the eurozone exit is not a scenario envisaged by the EU treaty.

"It's not in the treaty. I have nothing to add to that. It is not in the treaty," he said.

Challenged that he was taking too much a legalistic approach to a very real political question, Draghi said: "We are using the treaties as a reference point for decisions."

"An issue such as the break up of the eurozone is not a marginal one, so that's where the power of our treaties comes into question."

Asked whether his style would be different to Trichet, the French chief who stepped down after eight years, Draghi, who has been on the bank's 23-member governing council since 2005, emphasised the importance of "continuity, credibility and consistency."

Some analysts gave him only a pass mark after his first public appearance.

"The ECB refused to blink and the euro crisis is now likely to intensify. Without a much bigger commitment from the ECB, we are all in big trouble," said Sony Kapoor, the managing director of Re-Define, an economic think-tank.

ECB returns to markets to help Italy and Spain

The European Central Bank has decided buy bonds from troubled eurozone countries after a five-month pause in a bid to stem the crisis from spilling to Italy and Spain.

Italy sides with Germany against eurobonds

At Italy’s first invitation for an audience before the Franco-German duo that powers European decision-making, Prime Minister Mario Monti made it clear he backs the German position on eurobonds.

Global central banks take action to prevent EU credit crunch

The US Federal Reserve, the European Central Bank and the central banks of some of the world’s key economies took emergency action to make it easier for banks to borrow US dollars - in effect preventing a global credit crunch.

ECB chief hints at more robust action

ECB president Mario Draghi offered hints on Thursday that the Frankfurt institution is ready to expand its efforts to staunch the eurozone crisis, but only if eurozone economies commit to deeper integration rapidly under what he called a “fiscal compact”.

Euro is 'irreversible' and 'permanent', says ECB chief

The euro is "irreversible" and will overcome the crisis, European Central Bank chief Mario Draghi said Monday, while making the case for austerity and fiscal discipline. But he also warned of prolonged recession due to a credit crunch in 2012.

Stolen Russian billions ended up in EU states

Illicit money flowing out of Russia ended up in almost every single EU state, an investigation has found, posing questions on the integrity of Europe’s banking systems.

News in Brief

  1. UK publishes 'Great Repeal Bill' plan to replace EU laws
  2. Scots share May's vision for Brexit deal, survey says
  3. Coalition talks leader expects Dutch government by summer
  4. EU commission allows ex-member Hill to join law firm
  5. Reuters: Greece and lenders move closer to deal
  6. Italy: Le Pen win would mean 'permanent political risk'
  7. Danish parliament misinformed on Nord Stream 1
  8. UK delivered its Article 50 letter to the EU

Stakeholders' Highlights

  1. The Idealist QuarterlyCan Progressive Stories Survive Our Post-Truth Era? After-Work Discussion on 6 April
  2. ACCAG20 Citizens Want 'Big Picture' Tax Policymaking, According to Global Survey
  3. Belgrade Security ForumCall for Papers: European Union as a Global Crisis Manager - Deadline 30 April
  4. European Gaming & Betting Association60 Years Rome Treaty – 60 Years Building an Internal Market
  5. Malta EU 2017New EU Rules to Prevent Terrorism and Give More Rights to Victims Approved
  6. European Jewish Congress"Extremists Still Have Ability and Motivation to Murder in Europe" Says EJC President
  7. European Gaming & Betting AssociationAudiovisual Media Services Directive to Exclude Minors from Gambling Ads
  8. ILGA-EuropeTime for a Reality Check on International Day for the Elimination of Racial Discrimination
  9. UNICEFHuman Cost to Refugee and Migrant Children Mounts Up One Year After EU-Turkey Deal
  10. Malta EU 2017Council Adopts New Rules to Improve Safety of Medical Devices
  11. Nordic Council of MinistersNordic Energy Research: How to Reach 100 Percent Renewable Energy
  12. Party of European SocialistsWe Must Renew Europe for All Europeans