ECB chief hints at more robust action
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Draghi: The ECB is looking for a 'fiscal compact' (Photo: European Parliament)
European Central Bank 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”.
Parsing the wording of central bankers is never an exact science and indeed the newly minted central bank chief in his first speech to the European Parliament was far from explicit.
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"It is first and foremost important to get a commonly shared fiscal compact right," he said to a chamber nearly empty of MEPs despite the gravity of the situation.
"I think the next few days will be very important to tell us whether we make progress on this."
The European Commission last week unveiled proposals that would radically centralise fiscal-policy-making, giving the EU executive the right to in effect direct national budget-making before the documents have been presented to national parliaments.
Draghi appeared to endorse this strategy, suggesting that once such a fiscal union was in place, “other elements” could occur, wording that could be taken to mean the ECB is now opening the door slightly to a more robust purchase of Spanish and Italian government bonds.
Until now, the ECB and Germany have firmly resisted now EU-wide and even global pressure to open the taps and become the lender of last resort to the currency area.
Such a fiscal compact is “the most important element to start restoring credibility” he added.
“Other elements might follow, but the sequencing matters,” he said, hinting that a pact for fiscal union must come first. European leaders are expected to consider the commission’s plans at a crunch Brussels summit on 9 December.
Olli Rehn, the EU’s economy chief, has said that the eurozone has just days to save the euro, billing this summit as the make-or-break meeting for the single currency area and perhaps the Union itself.
Draghi also said that the bank did not want to see inflation “undershoot” the ECB’s target of below but close to two percent.
The wording is being read by markets as telegraphing a rate cut, perhaps to one percent, down from the current 1.25 percent.
He conceded that Europe had entered a credit crunch. The situation was the most important issue to resolve, he said.
"We have observed serious credit tightening in the most recent period, which combined with the weakening of the business cycle, doesn't bode at all well for the months to come."
"In our view now the most important thing for the ECB to do is to repair the credit channel," he said.
