ECB chief says global economy at the root of Eurozone's problems

The Eurozone’s problems have more to do with the global economy than its own weaknesses, according to Mario Draghi.

By Andrei Geica

17 Feb 2016

The European Central Bank president, addressing MEPs in the European Parliament’s Economic and Monetary Affairs committee on Monday, went as far as claiming that the Eurozone is in better condition today than it was a few years ago.

Some of the global problems he highlighted to MEPs included weak trade figures, turbulence in financial markets, geopolitical risks and the decline in oil and other commodity prices.

Draghi said market fragility was apparent as early as last summer, with the drop in oil prices and the economic slowdown in China and other developing countries.


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The ECB president argued that Europe was now better able to face this challenging environment because of the increased resilience of individual institutions and of the financial system as a whole. Action taken since the 2008 crash include stronger regulation both in Europe and globally, with the Financial Stability Board’s Total Loss-Absorbing Capacity (TLAC) international standard and the European Minimum Requirement for Own Funds and Eligible Liabilities (MREL).

Draghi said the Bank Recovery and Resolution Directive (BRRD) was a significant step forward, particularly in terms of banks’ loss-absorbing capacity, which is a fundamental part of the resilience of the European banking system.

He strongly defended the ECB’s monetary policy, saying that the Eurozone recovery, while not ‘spectacular’, was gradual and continuous. According to the bank’s estimates, half the recovery can be attributed to the to the ECB’s monetary policy, with the other half to the drop in oil prices.

However, further action is needed in Europe, including addressing the remaining challenges in the banking sector, re-evaluating the effectiveness of the financial system’s transmission of the monetary policy, and dealing with inflation, which is well below the ECB target.

Draghi pointed out the low inflation trend is global not European, but it could lead the bank’s Governing Council to consider changing its monetary policy stance in March, including expanding the range of bonds that can be bought through the purchase programme.

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