ECB’s Draghi Cautiously Upbeat on Eurozone
The Head of the European Central Bank (ECB) says that risks to the strengthening economy of the 19-country Eurozone have fallen insisting it is too early to declare victory and start withdrawing stimulus measures.
Mario Draghi said in remarks delivered Wednesday in the Dutch Parliament that recent data confirm that the rebound “is becoming increasingly solid and that downside risks have further diminished.”
He added that “nevertheless, it is too early to declare success” and stressed that the bank’s improved forecasts assume the full implementation of its stimulus measures. The bank says it will continue pumping EUR 60-B ($66-B) a month in newly printed (fiat) money into the economy through the end of the year, and beyond if necessary.
Also, the central bank has held its Key interest rate benchmark at a record low of Zero even as growth picked up.
Mr. Draghi was greeted by finance committee chairman Pieter Duisenberg, the son of Wim Duisenberg (dec.), the 1st head of the ECB when it was created in Y 1998 ahead of the introduction of the single currency in Y 1999.
The ECB’s stimulus programs have provoked criticism in the more prosperous northern European countries such as Germany and the Netherlands. That’s because the stimulus efforts to lower market interest rates are seen as hurting savers and bailing out less financially solid countries.
Analysts expect the ECB to signal later this year it will taper the stimulus program in Y 2018.
The single currency union’s economy grew 0.5% in Q-1 and unemployment has fallen slowly to 9.5%, but with sharp differences between countries. Inflation has risen to 1.9%, in line with the ECB’s goal of just under 2%.
But, the bank has warned it needs to see that inflation is back on track in a sustainable way. Core inflation, which excludes volatile food and fuel prices, remains at a weak 1.2%.
Withdrawing the stimulus means higher interest costs for longer-term borrowers such as corporations, governments and people with house mortgages. It will make it easier to save for retirement and to fund pension plans out of current income. It could also send bond prices lower in the short terms.
Over the longer term, higher rates should make conservative holdings such as savings accounts and bonds more attractive relative to riskier ones such as stocks.