“Cyprus is no turning point in euro policy,” Mario Draghi, president of the E.C.B., said at a news conference. And he rejected suggestions that Cyprus or any other country might leave the euro, or be better off if it did.
There is “no Plan B,” Mr. Draghi said.
Nor is there, for now at least, a Plan B even for the European Union’s bigger, but moribund, economies. Survey data published Thursday showed a further slide in business confidence on the Continent.
The E.C.B. left its benchmark interest rate unchanged Thursday at 0.75 percent, while the Bank of England held its rate steady at 0.5 percent. With both central banks’ rates already at record lows, there might be little room to use interest rates as a stimulus. But the euro zone economies, like that of Britain, are stagnant and in need of help wherever they can find it.
Mr. Draghi said the E.C.B. was looking for new ways to stimulate lending in the weak euro zone economy, and could move quickly. It was unclear, though, what options might be available.
“We will assess all the data in coming weeks and we stand ready to act,” he said, without offering many clues about what measures he might have in mind.
The global financial crisis in recent years has forced central banks around the world to do much more than simply tweak the official interest rate as they had in the past. On Thursday, Haruhiko Kuroda, the new governor of the Bank of Japan, announced that it would seek to double over two years the amount of money in circulation, initiating a bid to end years of falling prices.
But the E.C.B., with its mandate to defend price stability above all else, is more constrained than its counterparts in other developed nations.
During the past year, Mr. Draghi has managed to quiet financial markets, cap government borrowing costs and contain the euro zone crisis by making it clear that the E.C.B. would not allow the 17-country euro currency union to unravel. He repeated those reassurances Thursday. But it is not clear what tools he sees at his disposal.
Making sure that “credit will flow to the real economy seems to be the E.C.B.’s number one priority,” Carsten Brzeski, an economist at ING Bank, wrote in a note to investors. “However, judging from today’s press conference, the E.C.B. looks rather clueless on how to tackle the problem.”
Mr. Draghi said there was a consensus among the 23 members of the central bank’s Governing Council not to cut rates even lower “for the time being.” The bank also discussed other, unconventional ways to help countries where credit remains tight, he said.
“We will continue to think about this issue in a 360-degrees way,” Mr. Draghi said. “The experiences of other countries tell us we have to think deeply before we can come up with something useful and consistent within our mandate.”
Large-scale purchases of corporate debt, which have been used by the Federal Reserve to stimulate lending in the United States, would be more difficult in Europe because most companies get their credit directly from banks, Mr. Draghi indicated.
With inflation already below the E.C.B.’s target of about 2 percent, some analysts have worried that, like Japan, the euro zone also faces a risk of deflation — a broad decline in prices that can be more destructive and difficult to cure than inflation. Mr. Draghi said, however, that risks to price stability were “broadly balanced,” indicating that he did not yet see a major risk of deflation.
Mr. Draghi found himself devoting much of the hourlong news conference trying to dispel fears that Cyprus represented an ominous new phase of the euro zone crisis.
He acknowledged that an initial decision by officials from the European Union, the International Monetary Fund and the E.C.B. to impose a tax on small bank deposits was “not smart, to say the least.” But he pointed out that euro zone officials quickly corrected that error.
Article source: http://www.nytimes.com/2013/04/05/business/global/european-central-bank-holds-steady-on-interest-rate.html?partner=rss&emc=rss
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