Draghi sends strong signal that ECB will act

Thu Jul 26, 2012 11:22am EDT
 
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By David Milliken and Marius Zaharia

LONDON (Reuters) - European Central Bank President Mario Draghi pledged on Thursday to do whatever was necessary to protect the euro zone from collapse, sending a strong signal that inflated Spanish and Italian borrowing costs were in his sights.

Fears about the euro zone's future are intensifying with Spain and Italy facing frenzied pressure on financial markets and Greece holding crunch meetings with its international lenders having failed to keep its repair plans on track, raising fresh questions about its place in the currency bloc.

With the need for urgent action becoming increasingly apparent, the ECB appears to be gearing up to flex its muscles, something Madrid and Rome have been seeking for months.

"Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough," Draghi told an investment conference in London to mark the beginning of the Olympics.

"To the extent that the size of the sovereign premia (borrowing costs) hamper the functioning of the monetary policy transmission channels, they come within our mandate," he said.

The ECB has cut interest rates to record lows and offered banks unlimited liquidity without any meaningful boost to the euro zone economy or bank lending resulting.

The comments are Draghi's boldest to date and suggest the central bank is ready to defend Italy and Spain whose borrowing costs have hit unsustainable levels.

Winding up his remarks to an audience of business leaders, he said: "I think I will stop here. I think my assessment was candid and frank enough."   Continued...

 
The European Central Bank (ECB) President Mario Draghi speaks during the monthly news conference in Frankfurt, January 12, 2012. REUTERS/Alex Domanski