As expected the European Central Bank kept the cost of borrowing unchanged at a record low 0.5 percent on Thursday, and ECB head Mario Draghi was very cautious on the eurozone’s economic recovery.
He said the ECB is ready to cut interest rates or pump more stimulus cash in if banks start charging customers and companies more to lend them money.
He told a news conference: “The risks surrounding the economic outlook for the euro area continue to be on the down side. The Governing Council confirms that it expects the key ECB interest rates to remain at present or lower levels for an extended period of time.”
A recent run of stronger-than-expected economic data for the eurozone, combined with the prospect of the US Federal Reserve winding down its stimulus, has pushed up market rates.
The dollar rose to a six-week peak against the euro after Draghi’s comments.
One of the factors weighing on the eurozone’s recovery is the parlous state of Greece’s economy and Draghi refused to help there. He said the bank would not takes losses on its Greek bond holdings to aid Athens.
“It is pretty clear that we cannot do monetary financing,” Draghi said. Asked directly if the ECB would participate in Greek debt relief, he said: “No”.
The chair of the group of euro-zone finance ministers Jeroen Dijsselbloem was more accommodating as he admitted it is not over yet.
He told the European Parliament’s economic affairs committee: “It’s clear that despite recent progress, Greece’s troubles will not, and I repeat will not, have been completely resolved by 2014. It is realistic to assume that additional support will be needed beyond the programme.”
Dijsselbloem is the first eurozone official to admit Greece will need more money and more time to pay back its bailout loans.
He said the Eurogroup would stand by the crisis-hit country and further reduce the interest rates on those loans.
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