ECB's Draghi says euro zone recovering slowly

Thu Feb 23, 2012 12:53pm EST
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FRANKFURT (Reuters) - The euro zone economy is on the mend after a very weak end to 2011 and there have been more positive signs over the last two weeks, European Central Bank President Mario Draghi was quoted on Thursday as saying.

Draghi said inflation was well under control, and he rejected criticism of the ECB for securing better terms on its Greek government bond holdings than private holders have.

Asked if the positive signs had increased since the ECB rate-setting meeting earlier this month, Draghi told German daily Frankfurter Allgemeine Zeitung (FAZ) in an interview: "Yes, I would say so, although uncertainty remains high."

In an interview with the Wall Street Journal (WSJ) he added that despite some better signs "the recovery is proceeding very slowly and remains subject of downside risks."

The Italian also said there was no risk of the euro zone entering a Japan-style lost decade.

"What makes me confident are the reforms that have been started in Europe in the past four or five months," Draghi told the FAZ, which will publish the interview in its Friday edition.

Draghi, who took charge in November and cut rates in back-to-back meetings to kick off his presidency, said the bank's half-trillion-euro injection of 3-year funds - with more to come next week - posed no inflation risks.

"There is no sign of inflationary tendencies in the euro area, quite the opposite. And if there should be any sign of future inflation, we have the instruments with which to absorb the liquidity again within a short space of time," he told FAZ.

The ECB put no pressure on banks to buy sovereign bonds with the long-term loans it is giving them, Draghi said, adding that the central bank would prefer seeing that money flowing into the economy as credit.   Continued...

The European Central Bank (ECB) President Mario Draghi speaks during the monthly news conference in Frankfurt, February 9, 2012. REUTERS/Alex Domanski