Sunday

24th Jun 2018

ECB steps in, vows help 'as long as needed'

  • The ECB governing council met in Bratislava (Photo: Vlado Benko)

The European Central Bank on Thursday (2 May) lowered its key interest rate to a record low of 0.5 percent and vowed to take more action "if necessary", in a move aimed at alleviating recession and unemployment in the eurozone.

The governing council comprising of central bank chiefs from all 17 euro countries had a "very very strong prevailing consensus towards an interest cut," ECB chief Mario Draghi said in a press conference.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... our join as a group

It is the first time in 10 months the key interest rate has been slashed, from 0.75 percent to a historic low of 0.5 percent.

Draghi also signalled that the interest rate for parking money overnight at the ECB, currently kept at zero, may be slashed in the future, meaning banks would have to pay if they hold the money there instead of lending it to each other or to companies.

"We stand ready to act if needed," Draghi said in reference to potential negative interest rates.

The Italian banker explained that the rate cut "should contribute to support prospects for a recovery later in the year" and vowed to keep an "accommodative" monetary policy "for as long as needed."

With inflation having dropped to 1.2 percent in April, well below the two-percent threshold the ECB has to maintain, the governing council had no excuse to not lower the interest rate.

But Draghi also said governments should not abandon structural reforms and continue shrinking their budget deficits.

"Furthermore, they should maintain the momentum towards a genuine economic and monetary union, including the swift implementation of the banking union," he said.

Slow or "insufficient" reforms in the euro area can "dampen confidence and thereby delay the recovery," Draghi warned.

His recipe for fighting the economic gloom while keeping lean budgets and not piling on more debt is to lower taxes: "Now that there is more time, there could be a shift towards reducing current government expenditure and lowering taxes."

What governments should not do is to expect the ECB to "supplement" them for their lack of reforms or to clean up the balance sheets of troubled banks.

Not everyone was happy with the rate cut. According to the Financial Times, German ECB board member Joerg Asmussen voted against the move. And Chancellor Angela Merkel last week said a rate cut may be in the interest of weaker economies in the eurozone, but Germany would need a rate increase, "because savings are currently losing value."

Draghi downplayed her comment and said it merely reflects the difficult situation the ECB is in - making one policy for 17 different 17 countries.

"So, the monetary policy measures which can benefit some countries may not benefit others. Given the weakness that also extends to the core economies, we think it does benefit everybody," he said.

German banks and insurance companies, meanwhile, have formed a "grand coalition for savers" against the ECB and its low interest rates, Sueddeutsche Zeitung reports.

"[German] depositors shouldn't be permanently drawn into solidarity payments for Europe without being asked," said the head of German Sparkassen association, Georg Fahrenschon.

Germany's top court hosts ECB showdown

The German Constitutional Court is on Tuesday to hear from opposing camps about the legality of ECB bond-buying and other anti-crisis measures.

Greece and creditors proclaim 'end of crisis'

After late-night talks, the Eurogroup agreed on a €15bn disbursement and debt relief measures for Greece, while setting out a tight monitoring when the bailout ends in August.

Opinion

The risks behind the 'green bond' boom

The EU should not overuse the financial system in order to achieve environmental goals, or it risks the emergence of a green bond bubble which would be detrimental to the financial sector and hinder the achievement of climate targets.

Opinion

Eurozone needs institutional reform

Both the examples of Greece and Italy test the limits of a system with inherent weaknesses that feeds internal gaps, strengthens deficits and debts in the European South, and surpluses in the European North respectively.

News in Brief

  1. Venice Commission: Hungary should repeal NGO law
  2. Trump threatens to slap 20 percent tariff on EU cars
  3. EU closes deficit procedure against France
  4. Romania's ruling party leader gets jail sentence
  5. EU states defer individual decisions on asylum reforms
  6. Commission opens case on Qatar gas flow
  7. EU adopts posted workers directive
  8. EU leaders to call for 'coordinated plan' on AI

Stakeholders' Highlights

  1. Mission of China to the EUJointly Building Belt and Road Initiative Leads to a Better Future for All
  2. Macedonian Human Rights MovementMHRMI Launches Lawsuits Against Individuals and Countries Involved in Changing Macedonia's Name
  3. IPHRCivil society asks PACE to appoint Rapporteur to probe issue of political prisoners in Azerbaijan
  4. ACCASocial Mobility – How Can We Increase Opportunities Through Training and Education?
  5. Nordic Council of MinistersEnergy Solutions for a Greener Tomorrow
  6. UNICEFWhat Kind of Europe Do Children Want? Unicef & Eurochild Launch Survey on the Europe Kids Want
  7. Nordic Council of MinistersNordic Countries Take a Stand for Climate-Smart Energy Solutions
  8. Mission of China to the EUChina: Work Together for a Better Globalisation
  9. Nordic Council of MinistersNordics Could Be First Carbon-Negative Region in World
  10. European Federation of Allergy and AirwaysLife Is Possible for Patients with Severe Asthma
  11. PKEE - Polish Energy AssociationCommon-Sense Approach Needed for EU Energy Reform
  12. Nordic Council of MinistersNordic Region to Lead in Developing and Rolling Out 5G Network

Latest News

  1. EU leaders still in search of migration plan
  2. Migration row at centre of EU summit This Week
  3. Merkel's woes cast shadow on EU's future
  4. Europe's tech race - trying to keep pace with US and China
  5. Merkel and Juncker's mini-summit risks fiasco
  6. Greece and creditors proclaim 'end of crisis'
  7. How a US firm pushed for EU €2.1trn pension fund
  8. Commission defends Africa migrant plan ahead of summit

Join EUobserver

Support quality EU news

Join us