European Central Bank boss Mario Draghi declared an end in sight to the eurozone’s economic woes today as he prepared to fire the starting gun on a €1.1trn (£798m) quantitative easing programme within days.
Helped by a tailwind of lower oil prices, a weak euro, and ultra-low interest rates of just 0.05 per cent the ECB sharply raised its estimates of growth across the single currency bloc this year from 1 per cent to 1.5 per cent - the strongest since 2011. Its forecasts for 2016 were also raised higher, from 1.5 per cent to 1.8 percent.
The euro has fallen to an 11-year low against the dollar of $1.1005 in anticipation of the 18-month QE operation, in which the central bank will buy up government bonds at the rate of €60bn a month from Monday. The currency is also at a seven-year trough against the pound.
Mr Draghi, speaking in Cyprus where the ECB held this month’s meeting, said: “The latest economic data... point to some further improvements in economic activity at the beginning of this year. Looking ahead, we expect the economic recovery to broaden and strengthen gradually.”
The eurozone saw sluggish growth of 0.3 per cent in the final quarter of the year and inflation is still far below the ECB’s target of ‘close to 2 per cent’ at a dangerously low minus 0.3 per cent. But crucially, the central bank now also believes the cost of living will be virtually back to target by 2017.
ING Bank economist Carsten Brzeski said: “The ECB’s macro-economic assessment sounded as if the central bank is a bit inebriated by its own QE announcement. It was the most positive and optimistic assessment in a long while. Words like “broadening” and “strengthening” had not been used in combination with the eurozone recovery for quite a while.”
Mr Draghi also said the ECB “stood ready” to support ailing Greece, whose newly-elected Syriza leadership has four months to submit a convincing plan to turn its economy and finances around and attempts to ease austerity terms.
But the ECB is not yet ready to accept junk-rated Greek government bonds from Greek banks in return for credit from the ECB, forcing the nation’s banks to rely on more expensive emergency funding until it has completed a successful review of its €240bn bailout.
The president added that the ECB had doubled its lending to Greece to €100bn in the past two months alone. He added: “The lending to Greece today is 68 percent of the Greek GDP, which is the highest in the euro zone. So in this sense one can really say that the ECB is the central bank of Greece. But it’s also the central bank of the other countries and it’s a rule-based institution.”
The ECB has also extended the emergency aid to Greece’s banks by €500m. Mr Draghi added: “A lot has been done by Greece to strengthen its banking system ... so today the Greek banking system is solvent and is key to provide credit to the Greek economy. It’s absolutely essential that this solvency be maintained because that is the pre-condition for the ECB to be able to allow emergency liquidity assistance and therefore financing to the economy.”Reuse content