The European Central Bank did not cut interest rates at its monthly policy meeting on Wednesday, making it clear to eurozone governments that they have to do more to solve the bloc’s debt crisis.
Draghi said it was wrong for the ECB to fill a policy vacuum created by others and that there would be no quid pro quo between the central bank and governments.
“There is no sort of horse trading here,” he told a news conference.
“Some of these problems in the euro area have nothing to do with monetary policy … and I don’t think it would be right for monetary policy to fill other institutions’ lack of action.”
The benchmark cost of borrowing for the 17 eurozone countries remains at a record low of 1.0 percent, but still above that of other major economies.
The ECB left its growth forecast for this year unchanged, but ECB President Mario Draghi said the region is under increasing threat: “Economic growth in the euro area remains weak, giving rise to increased downside risks to the economic outlook. Ongoing tensions in some euro area sovereign debt markets, and their impact on credit conditions, are expected to continue to dampen the underlying growth momentum.”
With increasingly signs that Spain’s banking problems are opening a new front in the debt crisis, Draghi was asked if the eurozone’s bailout fund, the European Financial Stability Fund should be allowed to help Spanish banks directly.
He hedged and said that should be based on a “realistic assessment of banks’ needs” adding the ECB can’t push governments into accessing the fund.
Draghi also talked down the idea of the ECB injecting more money into the banking system as it did earlier this year with low cost loans. He said the issue was whether they would be effective.
The respite the ECB bought the euro zone early this year by injecting over one trillion euros into its banking system with twin three-year loan operations (LTROs) has faded, with borrowing costs for troubled countries such as Spain soaring again.
At Draghi’s news conference the elephant in the room was Greece. Depending on how next week’s elections turns out Greece may be forced into a chaotic exit from the euro.