Draghi: interest rates remain the same but we are ready to react

To the European Central Bank “we are ready to take all the available resources into consideration” against credit weakness for businesses. Friday’s meeting with Ministries of Finance of Germany, France and Italy in Berlin with Barnier

At the European Central Bank “we are ready to take all available resources into consideration” against credit weakness for businesses and this time Frankfurt will assure that any new funds are used in the real economy. President Mario Draghi clarified this at the end of the Governing Council, which as expected, confirmed the interest rates are at a record low of .25 percent. On the cost of money the margins of action are limited, but Draghi explained that in any case there are still “a large range of tools” with which we can work. “Keeping ourselves – he specified – within the area of our mandate.”

The President was not more specific, except to indirectly confirm one of the various hypotheses going around the last few weeks: to implement new injections of liquidity into banks, but this time actually in a way tied to being reused in the actual economy. “If we do another ‘Iter – he said – we want to guarantee they are used to finance the economy, and that it is not used to make the carry trade.” This last reference is to several speculative typical operations in the money market (taking loans with low interest rates and reinvesting them in other assets to provide a higher return, making money on this simple differential.)

Yesterday the ECB announced an adjustment to an increase in the prevision for economic growth but at the same time a revision to lowering inflation. Now for 2013 a .4% decline of GDP is forecast in currency, followed by an increase of 1.1% next year and 1.5% more in 2015. On the increase of consumer prices though, now the Frankfort analysts estimate an increase of 1.4% in 2013, a 1.1% increase for next year and in 2015 a 1.3% raise. Data which the institution has decided to furnish additional details from now on.

Inflation forecasted seems below the ECB’s threshold goal; in any case Draghi confirmed that according to the Council, the public’s overall expectations on price dynamics seem “firmly anchored to our target values in the medium and long-term.” These statements tend to be interpreted with general restraints from the markets, insomuch as the Euro increased to $1.3668, where in precedence it fluctuated around 1.36. Nevertheless, it could be a hasty prediction.

In many respects Draghi did not even slightly show a desire to stray from the soft line. On the contrary, he explicitly reiterated that the ECB plans to maintain interest rates in the Euro area at current levels, or lower, for a prolonged period of time. And more generally “the monetary policy will remain accommodating for as long as necessary.” And on what seemed to be one of the most pressing issues in the last few weeks, that of the slowdown of consumption and prices linked to the context of weakness of the internal market, he said “we are well aware of the risks you insist on low inflation,” to the ECB – even considering efforts toward improving competitiveness in the countries.

“There is no doubt that it is easier to correct a 2% inflation than one of zero – he noted – given the rigidity that it creates on inflation and prices.” (continue) According to sources at the EU in Brussels, the Ministries of Finance of the major countries of the Euro zone, including the Italian Fabrizio Saccomanni, met yesterday in Berlin with Mario Draghi, President of the ECB, and Jeroen Dijsselbloem, President of the Euro Group, to try to unblock the 3 remaining measures to complete the single European banking union: the BRRD directive (“Bank Recovery and Resolution Directive”), which establishes the rule for “bail in” for banks in crisis (or rather their rescue funds financed nationally from the same banking system, without recourse for public funds); the Deposit Guarantee Scheme – blocked for 3 years; and the single European system for the resolution of banking crisis by creating an Authority and a Resolution Fund.

The package, in accordance with the commitment made by EU leaders on several occasions, should have been launched by the end of the year but there has been a significant delay in the schedule. On Monday the Eurogroup will have to address it and then Ecofin next Tuesday, also to prepare the forecasted decisions for the European Council meeting on December 19-20^th, which is the last one scheduled for the year. So far the only element in the Union banking package already approved is the single supervisory mechanism, in the care of the ECB, which will go into effect by 2014.

Yesterday in Berlin the Ministers of Finance for Germany, France and Italy – the three main economies of the Euro area – met with Michel Barnier, European Commissioner for Internal Markets.

Roberto Vozzi e Lorenzo Consoli per TMNews