ECB warns risks to EU recovery include Ukraine crisis, keeps rates low

ECB warns risks to EU recovery include Ukraine crisis, keeps rates low
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The European Central Bank has warned the crisis in Ukraine poses risks to the eurozone’s weak and uneven economic recovery.

ECB President Mario Draghi – announcing borrowing rates will stay at record low levels to stimulate growth – said a tit-for-tat sanctions war between Russia and the West could make things worse.

Increased tensions have already hit business confidence in the region.

He also flagged up instability across the Middle East as another factor holding back growth.

He told reporters: “Heightened geo-political risks as well as developments in emerging market economies and global financial markets, may have the potential to affect economic conditions negatively, including through effects on energy prices, and global demand for euro area products.”

Draghi again downplayed the danger of deflation and stagnation, despite recent low inflation. July’s 0.4 percent reading was the lowest in more than four years.

Low prices are partly a result of government spending cuts and reduced wages linked to reforms.

The ECB supports those reforms, but is ready to act if prices get stuck at low levels.

Draghi said he also expected a strong take-up by banks of next month’s flood of low interest money from the ECB which could then be loaned on to businesses.

And he stressed the ECB readiness to resort to quantitative easing (QE) – printing money to buy asset-backed securities (ABS) – to stimulate growth and boost inflation.

Draghi explicitly mentioned that option despite the stated reluctance of Germany’s influential Bundesbank.

“I can only reaffirm that the Governing Council is unanimous in its commitment to also use unconventional measures like ABS purchases, like QE, if our medium-term outlook for inflation were to change,” the ECB chief said.

with Reuters