ECB chief Mario Draghi sees gradual economic recovery

 

The head of the European Central Bank is staying with his forecast for a gradual economic recovery this year in the 17 countries that use the euro.

However, Mario Draghi said that Europe's debt crisis means increased "downside risk" to growth.

Mr Draghi made the remarks after the bank left its key refinancing interest rate unchanged at 1%. He said economic activity "remains weak, with heightened uncertainty weighing on confidence".

Some economic indicators have suggested that the eurozone's mild contraction will worsen this year. But the ECB left its growth projection unchanged at between 0.5% and 0.3% growth this year.

The eurozone faces trouble on several fronts.

Spain is struggling to bail out banks that made reckless loans during a real estate boom and are now suffering mounting losses. Greece, already rescued by expensive bailout loans from the other countries, faces elections on June 17 that could result in rejection of the strict cutbacks demanded under its bailout. That could lead to a chaotic exit from the euro.

Trouble in one place could spread to other countries in the form of investors selling assets and bank customers withdrawing deposits for fear banks will collapse or their savings will be redenominated in a new currency after euro exit.

Finance ministers from the Western industrial countries held a conference call on Tuesday to discuss the eurozone crisis.

A renewed financial crisis in Europe could hurt growth in the United States and Asia by creating losses and fear among banks, which are key to the functioning of the global economy, and by hurting trade.

Some of the eurozone's problems, however, were beyond the reach of central bank action such as rate cuts or loans to banks. The ECB has already taken strong action to stimulate credit and borrowing by cutting rates to record lows and loaning one trillion euro in emergency credit to banks.

Borrowing has yet to pick up, Mr Draghi said, with some parts of the European financial system having plenty of liquidity, or access to borrowing and cash by banks, while others do not, he said. That was not the fault of the central bank, he said.

"There is plenty of liquidity in some parts... and shortages in other areas," he said. "Some of these problems in the euro area have nothing to do with monetary policy."

He said real interest rates were already so low as to be negative in inflation adjusted terms, given an inflation rate of 2.4%. He left the door open for more central bank action if things got worse, saying "we'll monitor closely all the developments and we'll stand ready to act".

Mr Draghi told European politicians in Brussels last week that the euro's basic set-up is "unsustainable" and urged them to work out a long-term vision for strengthening the euro's basic institutions over the next few years.

He repeated that call today, in response to a question about his expectations for a June 28-29 European Union summit.

"What we all expect is a clarification of this vision, a path towards this objective with all the conditions that have to be satisfied to achieve this objective."

While it tries to squeeze more effort from government, the ECB is facing a weakening economy in the 17 countries that use the euro.

Surveys of economic activity and business confidence have pointed sharply down, suggesting that the mild contraction of 0.3% predicted by the European Commission will turn out to be worse. That would argue for lower interest rates that would in theory make borrowing cheaper for businesses so they could expand and hire.

The measures to be discussed at the summit at the end of June could include further steps to increase growth, moves toward more control over national government's spending and some form of shared borrowing to reduce the chance that one country would default.

Life & Style
Sampling wine in Turin
food + drink...and abstaining may be worse than drinking too much, says scientist
Arts & Entertainment
Kingdom Tower
architecture
Sport
Jose Mourinho restrains his assistant manager Rui Faria, Fabio Borini celebrates his winning penalty and Connor Wickham equalises for Sunderland
sportChelsea 1 Sunderland 2: Deafeat is extra bitter as former Chelsea player Fabio Borini scores late penalty to seal victory
Arts & Entertainment
Game of Thrones writer George R.R. Martin has been working on the novels since the mid-Nineties
books
VIDEO
News
Easter a dangerous time for dogs
these are the new ones. Old ones are below them... news
News
Brand said he
people
Sport
Roger Federer celebrates his victory over Novak Djokovic in the Monte Carlo Masters
sport
Voices
Actor Zac Efron
voicesTopless men? It's as bad as Page 3, says Howard Jacobson
Arts & Entertainment
The monster rears its head as it roars into the sky
film
Voices
For the Love of God (2007) The diamond-encrusted skull that divided the art world failed to sell for
its $100m asking price. It was eventually bought by a consortium
which included the artist himself.
voicesYou can shove it, Mr Webb – I'll be having fun until the day I die, says Janet Street-Porter
Extras
indybestFake it with 10 best self-tanners
Arts & Entertainment
Madonna in her music video for 'Like A Virgin'
music... and other misheard song lyrics
News
Much of the colleges’ land is off-limits to locals in Cambridge, with tight security
educationAnd has the Cambridge I knew turned its back on me?
News
peopleOrlando Bloom the pin-up hero is making a fresh start
News
Who makes you happy?
happy listSend your nominations now for the Independent on Sunday Happy List
Have you tried new the Independent Digital Edition iPad app?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

1st Line Helpdesk Engineer Apprentice

£150.00 per week: QA Apprenticeships: This company has been providing on site ...

Telesales & Sales Support Apprentice

£221.25 per week: QA Apprenticeships: This company is a well established Inter...

Client Relationship Manager - SQL, Python

£40000 - £50000 per annum: Harrington Starr: Client Relationship Manager - SQL...

**Financial Services Tax**

£35000 - £50000 per annum: Pro-Recruitment Group: Take your chance to join the...

Day In a Page

How I brokered a peace deal with Robert Mugabe: Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC

How I brokered a peace deal with Robert Mugabe

Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC
Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'

British Muslims's Happy video attacked as 'sinful'

The four-minute clip by Honesty Policy has had more than 300,000 hits on YouTube
Church of England-raised Michael Williams describes the unexpected joys in learning about his family's Jewish faith

Michael Williams: Do as I do, not as I pray

Church of England-raised Williams describes the unexpected joys in learning about his family's Jewish faith
A History of the First World War in 100 moments: A visit to the Front Line by the Prime Minister's wife

A History of the First World War in 100 moments

A visit to the Front Line by the Prime Minister's wife
Comedian Jenny Collier: 'Sexism I experienced on stand-up circuit should be extinct'

Jenny Collier: 'Sexism on stand-up circuit should be extinct'

The comedian's appearance at a show on the eve of International Women's Day was cancelled because they had "too many women" on the bill
Cannes Film Festival: Ken Loach and Mike Leigh to fight it out for the Palme d'Or

Cannes Film Festival

Ken Loach and Mike Leigh to fight it out for the Palme d'Or
The concept album makes surprise top ten return with neolithic opus from Jethro Tull's Ian Anderson

The concept album makes surprise top ten return

Neolithic opus from Jethro Tull's Ian Anderson is unexpected success
Lichen is the surprise new ingredient on fine-dining menus, thanks to our love of Scandinavian and Indian cuisines

Lichen is surprise new ingredient on fine-dining menus

Emily Jupp discovers how it can give a unique, smoky flavour to our cooking
10 best baking books

10 best baking books

Planning a spot of baking this bank holiday weekend? From old favourites to new releases, here’s ten cookbooks for you
Jury still out on Manchester City boss Manuel Pellegrini

Jury still out on Pellegrini

Draw with Sunderland raises questions over Manchester City manager's ability to motivate and unify his players
Ben Stokes: 'Punching lockers isn't way forward'

Ben Stokes: 'Punching lockers isn't way forward'

The all-rounder has been hailed as future star after Ashes debut but incident in Caribbean added to doubts about discipline. Jon Culley meets a man looking to control his emotions
Mark Johnston: First £1 million jackpot spurs him on

Mark Johnston: First £1 million jackpot spurs him on

The most prize money ever at an All-Weather race day is up for grabs at Lingfield on Friday, and the record-breaking trainer tells Jon Freeman how times have changed
Ricky Gervais: 'People are waiting for me to fail. If you think it's awful, then just don't watch it'

Ricky Gervais: 'People are waiting for me to fail'

As the second series of his divisive sitcom 'Derek' hits screens, the comedian tells James Rampton why he'll never bow to the critics who habitually circle his work
Mad Men series 7, TV review: The suits are still sharp, but Don Draper has lost his edge

Mad Men returns for a final fling

The suits are still sharp, but Don Draper has lost his edge
Google finds a lift into space will never get off the ground as there is no material strong enough for a cable from Earth into orbit

Google finds a lift into space will never get off the ground

Technology giant’s scientists say there is no material strong enough for a cable from Earth into orbit