The European Central Bank continues to resist pressure from financial markets for it to fight the sovereign debt crisis by buying Spain’s government bonds.
After its monthly policy meeting, which was coincidentally held in the Spanish city of Barcelona, ECB President Mario Draghi said “there’s absolutely no contradiction” between pursuing a growth pact and fiscal austerity, with structural reforms by EU governments.
“We have to put growth back at the centre of the agenda, without any contradiction with the need to continue, persevere in fiscal consolidation,” Draghi said. “Now we need a common European discipline for doing reforms.”
He also painted an uncertain picture of the region’s economy: “The latest survey indicators for the euro area highlight prevailing uncertainty. Looking ahead, economic activity is expected to recover gradually over the course of the year.”
That was the justification for keeping interest rates unchanged at a record low one percent.
Draghi also said the economic weakness should limit inflation over time, which is the ECB’s main focus.
The Bank hopes the more than one trillion euros it has pumped into the financial system in recent months will boost economic growth. It has been under pressure from Germany to end all crisis-fighting stimulus moves but Draghi said that would be “premature”.
However asked if he was advocating no near-term economic stimulus, Draghi added: “It seems like that and it is right.”
Voters and investors are becoming increasingly disillusioned with the German-led call for austerity — summed up in the budget-constraining “fiscal compact” — as the region slides back into recession.
His comments deflated expectations that the ECB will take further policy action any time soon – either through rate cuts or by reactivating its bond-purchase programme, which the bank has left dormant for the last seven weeks.
“The ECB looks set to keep rates unchanged for a long while,” said ING economist Carsten Brzeski. “With today’s press conference, Draghi has sent a painful reminder that the ECB cannot solve the current crisis … there does not seem to be any quick fix or alleviation for the economy in the offing,” he added.