EUROZONE CRISIS
ECB's Draghi calls for 'strong' Greek debt deal
ECB President Mario Draghi has reaffirmed his commitment to quantitative easing and has called for a "strong agreement" between Athens and its international creditors to ensure Greece remains in the Eurozone.
Following the European Central Bank's Governing Council meeting on Wednesday, Draghi called for a "strong agreement" between Athens and its bailout lenders, saying the central bank wanted Greece to stay in the euro.
"A strong agreement is one that produces growth, that has social fairness but that is also fiscally sustainable and addresses the remaining sources or factors of financial instability in the financial sector," said Draghi.
"Negotiations are proceeding at this point of time," Draghi told reporters, declining to set out details of any compromises.
The ECB chief, however, underlined debt talks had not yet reached the point where the central bank could loosen the strings on Greece to allow it to extend issuance of short-term government debt, known as Treasury Bills (T-bills), as collateral for ECB liquidity.
When asked about extending collateral, Draghi said: "There should be a credible perspective for a successful conclusion of the current review. And that would imply by the member countries a disbursement. That would be the condition for the Governing Council to consider, because in any event there is no automaticity for consider a lifting of the T-bills' threshold. And we are not there."
Greek PM Alexis Tsipras and EU Commission chief Jean-Claude Juncker are meeting in Brussels to strike a cash-for reforms deal. On the table are two proposals about how sweeping reforms in Greece should be
Liquidity crisis
Greece's financial institutions are reliant on the national central bank's dwindling Emergency Liquidity Assistance (ELA) line, sanctioned by the ECB.
Funding through the ELA is offered by the national central bank of a eurozone country to solvent financial institutions that are "facing temporary liquidity problems, without such operations being part of the single monetary policy," according to the ECB.
Greek banks relied heavily on the ELA facility at the peak of the eurozone debt crisis in 2012. And in February this year, three of Greece's four major banks again started to tap ELA funding, as depositors had begun withdrawing their money amid fresh political uncertainty following the victory of the leftist Syriza party in the Jan. 25 election.
Borrowing from the Bank of Greece's ELA window, however, is more expensive than direct ECB funding, and it needs the approval of the ECB Governing Council, which is made up of the currency union's national central bank governors. In order to tap ELA funding, a country must be following a reform program agreed with the eurozone.
Lack of agreement
However, months of fractious debt talks between Greece and its lenders have been deadlocked over creditors' insistence that Athens undertake greater reforms which the country's anti-austerity government has refused to match.
On Wednesday, Greek Prime Minister Alexis Tsipras is meeting European Commission chief Jean-Claude Juncker in Brussels to discuss proposals to resolve the stalemate in the debt negotiations.
The cash-strapped southern European country has a 300 million euro ($335 million) payment to the IMF due on Friday and a series of bigger obligations later in the month, which it is unlikely to manage without aid.
No early exit
Among the other issues that featured in Draghi's customary post-meeting news conference were the latest economic data and the perceived effectiveness of the ECB's monetary policy measures.
While the central bank held its key interest rates steady at 0.05 percent, as expected, it increased its forecast for inflation in the eurozone this year to 0.3 percent. On economic growth, ECB staff kept forecasts unchanged at 1.5 percent this year and 1.9 percent in 2016.
ECB wants to push up eurozone's inflation by injecting liquidity into the financial system
On the question of monetary stimulus, Draghi ruled out any early exit from the ECB's bond-buying program worth 1.1 trillion euros ($1.2 trillion) until September 2016. In March, the ECB embarked on a program of so-called quantitative easing, or QE, aimed at buying sovereign eurozone bonds at a rate of 60 billion euros per month.
The aim is to inject liquidity into the financial system and push up the eurozone's chronically low rate of inflation.
High volatility
Draghi also said that investors should get used to periods of increased volatility, against a recent backdrop of nervousness on financial markets.
"At very low levels of interest rates, asset prices tend to show higher volatility," Draghi stressed, promising the ECB would "look through" such volatility when setting its monetary policy.
Although the central bank chief acknowledged that a protracted period of very low interest rates causes a series of problems for insurers, banks and other financial market players, he said it was not a good reason to change monetary policy as it "would undermine our price stability objective."
sri/uhe (AFP, Reuters, dpa)
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