28th Oct 2016

Russia driving up euro, says Draghi

  • Mario Draghi: "Our future lies with more integration, not with the renationalisation of our economies" (Photo: European Parliament)

Low inflation, weak demand and high unemployment are not the only reasons for a strong euro, which is a "matter of serious concern" for the governing board of the European Central Bank (ECB).

Russia's actions in Ukraine are "certainly one of the reasons", with credit flows from Russia and Ukraine "having the effect of keeping the euro strong," ECB chief Mario Draghi said Thursday (8 May) in a press conference.

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The euro is appreciating because it is seen as a safe haven by investors, compared to the shaky Ukrainian hryvnia and the Russian ruble.

Even though the ECB board decided to keep its interest rates unchanged for the moment, Draghi added there is "consensus" among eurozone central bankers that low inflation - 0.7 percent in April - has to be countered with "unconventional tools."

He also said this decision will be taken in June after the ECB staff comes up with economic projections for the months to come.

Back in the times of his predecessor, Jean-Claude Trichet, the standard answer when asked if the ECB will move interest rates was: "We never precommit."

But Draghi is more blunt. "The era of 'we never precommit' has finished a long time ago," he quipped.

Meanwhile, a special working group within the ECB has been set up to "monitor the geopolitical risk" - codename for the Russia crisis - and its fallout on the eurozone.

Draghi warned that an "escalation of sanctions", along with the recession which has gripped Russia and the instability in Ukraine "would certainly impact the eurozone and the EU more than other parts of the world."

He said similar working groups are being set up in national central banks, notably in those countries that trade most intensely with Russia and Ukraine.

As for media reports that businessmen in Russia are trying to get their capital out and are again flocking to tax havens such as Cyprus - a major issue last year before the island could receive its bailout - Draghi said: "We have no evidence where exactly the capital is going."

"If they go to Cyprus, it means that there is renewed confidence in the Cypriot economy. The government has been acting in compliance with the programme, capital controls are gradually lifted," he added.

A spokesman for the German finance ministry - one of the key actors demanding drastic measures against Russian depositors in Cyprus - told this website that Russian capital inflows in Cyprus "would not raise any concerns for the moment".

Looking ahead, with EU elections dominated by eurosceptic debates in several countries, Draghi said in his opinion, the euro crisis was caused partly by "too little integration".

"Our future lies with more integration, not with the renationalisation of our economies," he said.

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