ROME (Reuters) - Bond-buying by the European Central Bank will reinforce the euro zone’s economic recovery, its president, Mario Draghi, said on Thursday, adding that there was already evidence that the scheme was taking effect.
“Monetary policy is reinforcing the cyclical recovery. I insist in saying ‘cyclical’ because this recovery is not structural,” he told a parliamentary committee hearing, in a reference to long-term problems such as unemployment.
Draghi told lawmakers in Italy’s parliament that recent data releases “are comforting about the contribution that monetary policy is supplying to reinforce the cyclical recovery”.
He said there has been a particularly noticeable effect in lowering the level of the euro against other currencies.
The ECB has cut interest rates to record lows, lent banks billions of euros in cheap funds and begun buying sovereign bonds to try to bolster the euro zone economy and bring inflation back from zero to its target of close to 2 percent.
However Draghi repeated his mantra that euro zone governments had to do their part to boost productivity and growth by passing structural reforms to their economies and said that weakness in any one country hampered the entire bloc.
“Low potential growth creates macroeconomic imbalances and the vulnerability which arises has reverberations in other countries of the area,” he said.
Draghi also gave his encouragement to efforts in Italy and other countries to reduce billions of euros of bad loans in the banking system that are holding back lending and creating an obstacle to economic recovery.
Speaking to a parliamentary committee hearing in Rome, he said there needed to be a rapid solution to the problem of impaired loans in the euro zone overall.
“In general, the ECB looks very favorably at measures aimed at reducing the weight of impaired elements in the balance sheets of banks, including Italian banks,” he said. “An initiative of this kind frees up resources for the benefit of companies above all,” he said.
The comment came as Italy looks for a way to help banks cut their heavy burden of non-performing loans and develop a market for distressed loans, which have grown sharply since the start of the economic crisis.
additional reporting by Gavin Jones and Steve Scherer; writing by James Mackenzie and John O'Donnell; editing by Paul Carrel/Jeremy Gaunt