European bank head heralds 'progress'

New York Times News Service /

Published Oct 5, 2012 at 05:00AM

BERLIN — The president of the European Central Bank gave a guardedly upbeat assessment of the situation in the eurozone Thursday, saying that troubled countries had made “significant progress” remaking their economies and that the banking system was healthier.

“So, not bad,” Mario Draghi said, with an air of distinct satisfaction, at a press conference in the Slovenian capital of Ljubljana following a meeting of the bank’s governing council.

But, perhaps wary of seeming too optimistic and encouraging complacency by elected officials, he added that the state of the eurozone remained tenuous.

Early this year, Draghi also called a turning point in the crisis, only to see tensions return with a vengeance later on.

“We also have to express a note of caution,” he said. “Volatility is still relatively high. And governments will have to persevere on their reform action.”

After a period of intense activity to calm the eurozone crisis, the ECB had not been expected to announce major new policy actions Thursday. And, as expected, the bank left its benchmark interest rate at a record-low 0.75 percent.

Instead, the focus has been on elected leaders, and particularly whether Spain will meet conditions for the central bank to start buying its bonds as a way of restarting bank lending in the country.

Finance ministers of the 17 eurozone countries will meet next week, creating an opportunity for Spain to apply for assistance, though many analysts expressed reservations it would move that quickly, as it is balking at conditions it would have to agree to in exchange for drawing from one of the eurozone’s rescue funds. That is one of the steps required by the ECB before it will buy bonds.

Spain’s European partners are also conflicted over whether the country should apply for assistance. The Germans have been the most reluctant, with Finance Minister Wolfgang Schauble insisting that Spain was taking the right steps and did not need a bailout.

Draghi asserted that the central bank’s promise to buy bonds in so-called Outright Monetary Transactions had “helped to alleviate tensions” in the markets. He added that the bond purchases, once they begin, “will enable us to provide, under appropriate conditions, a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area.”

The euro rose against the dollar after Draghi’s comments, reaching a two-week high of $1.2990.