ECB puts onus on EU governments to solve crisis

The ECB has put the onus firmly on eurozone governments to solve the bloc’s debt crisis, dashing expectations it could take near-term action despite saying the currency area’s economy was under increasing threat.

President Mario Draghi said the bank was not open to trading with governments on the policy response to the crisis.

Increasingly alarmed by signs Spain’s banking crisis is opening a new front in the debt crisis, some in financial markets had hoped Mr Draghi would signal a readiness for the ECB to take fresh action if eurozone governments take bolder action.

Instead, Mr 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 said.

“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 respite the ECB bought the eurozone early this year by injecting over €1,000bn into its banking system with twin three-year loan operations (LTROs) has faded, with borrowing costs for troubled countries such as Spain soaring again.

Mr Draghi played down prospects of any imminent third round of long-term money creation, saying LTROs and the ECB’s dormant bond-buying programme were instruments that are in place but temporary and “not infinite”.

“The issue now is whether these LTROs would actually be effective,” he said when asked about another round.

Mr Draghi said the decision to leave rates unchanged was taken by “broad consensus”, adding that a few members, but not many, of the bank had wanted a rate cut.

The ECB has never before lowered its main refinancing rate below 1%. Berenberg Bank economist Holger Schmieding said it was an open question whether the ECB would cut rates in July.

He said: “In addition, the ECB offered no hint today that it may re-activate its two most important non-standard measures, that is the three-year long-term refinancing operations (LTROs) and the purchases of sovereign bonds.

“This suggests that it would take a major further escalation of financial tensions for the ECB to go beyond a possible rate cut in July.”

Mr Draghi said markets tensions had not returned to the levels of late last year.

Although flagging the increasing threat to the eurozone’s economy, new ECB growth forecasts for 2012 were unchanged — in a -0.5% to +0.3% range. The prediction for the following year was barely changed either.

“The economic outlook for the euro area is subject to increased downside risks relating in particular to a further increase in the tensions in several euro area financial markets and their potential spillover to the euro area real economy,” Mr Draghi said.