News / Europe

Europe's Central Bank Sits Tight, Vows 'Liquidity'

Mario Draghi, President of the European Central Bank, addresses the media during his monthly news conference in Frankfurt, March 7, 2013.Mario Draghi, President of the European Central Bank, addresses the media during his monthly news conference in Frankfurt, March 7, 2013.
x
Mario Draghi, President of the European Central Bank, addresses the media during his monthly news conference in Frankfurt, March 7, 2013.
Mario Draghi, President of the European Central Bank, addresses the media during his monthly news conference in Frankfurt, March 7, 2013.
Reuters
The European Central Bank this week will try to calm investors worried about the euro zone crisis flaring up again, pledging to keep the banking system lubricated after Cyprus's brush with financial meltdown.

The central bank is widely expected to hold off on an interest rate cut this month, instead waiting to see if a grim economic picture in the euro zone brightens before using its limited remaining margin for maneuvering, to lower borrowing costs further.

ECB policymakers meet against a backdrop of bleak economic data and concern Slovenia could follow Cyprus and seek a bailout. A Reuters poll last week pointed to interest rates remaining on hold deep into next year. The ECB's main rate stands at a record low of 0.75 percent.

"I think it's too early, but one more round of bad numbers and I think we will hear [ECB President Mario] Draghi signal a near-term rate cut," said Nordea analyst Anders Svendsen.

Underlining the euro zone's economic weakness, a business survey on Tuesday showed manufacturing across the bloc fell deeper into decline in March. The Cyprus bailout crisis - involving large losses for some depositors - has yet to take a toll on factory activity.

To ensure the euro zone financial system is funded properly, the ECB already is offering banks unlimited liquidity with loans up to 3 months, and reserves the option to provide them with more funding certainty over a longer horizon by laying on another 3-year funding operation, as it did a year ago.

The ECB has said emergency liquidity will be provided to Cyprus banks in line with its rules, which require banks to be solvent. It could also buy sovereign bonds if the country concerned accepts the austerity required for ECB intervention.

Despite the ECB's suite of policy options, markets remain nervous, unnerved by Cyprus's problems and by political stalemate in Italy. Euro zone bond markets began the week cautiously with peripheral bond yields at elevated levels.

Inflection point

Investors will be looking to Draghi for reassurance. Many are betting Slovenia will be next to need a rescue, though Finance Minister Uros Cufer told Reuters last week the country would not need one this year.

"It's not just the Cyprus debacle, there are also growing worries about Slovenia and the latest data has taken a downturn in March," said Howard Archer, economist at Global Insight. "I'm sure he'll do his best to sound reassuring on all fronts."

Nomura economist Nick Matthews expected Draghi to reinforce his message that the ECB is ready to do 'whatever it takes' within its mandate to preserve the euro - a line the Italian deployed last July to suck the heat out of the crisis.

"As part of this, Draghi will likely emphasize that the ECB stands ready to provide as much liquidity as required for the banking sector [including for Cyprus], within the rules," Matthews added.

The ECB's 23-man Governing Council discussed cutting rates last month, when Draghi said economic activity should recover gradually later this year.

With its main rate at 0.75 percent, the ECB has some room to lower borrowing costs though its deposit rate - the rate it pays banks to park money with it overnight - is at zero and Council members are reluctant to take it into negative territory.

Asked in a newspaper interview published last Thursday whether the ECB had any margin to cut rates further if the economic outlook deteriorated, ECB policymaker Yves Mersch said in theory 'yes' but there was no sign of this happening so far.

"Obviously, in theory there is margin [for that]. That said, your question implies the possibility of a deterioration in the outlook, something which there is no clear evidence of yet," Mersch told Spanish newspaper Expansion.

Tuesday's purchasing managers' survey pointed to fresh deterioration, though, as manufacturing across Europe's major economies endured another month of mostly deep decline in March.

Another dose of weak data could see the ECB change tack and signal a cut, according to Nordea's Svendsen. "We have enough things now on the agenda that could potentially have a negative consequence for the key figures, so I think we're at an inflection point."

You May Like

Photogallery Americans Celebrate Thanksgiving With Feasts, Festivities

Holiday traditions include turkey dinners, 'turkey trots,' American-style football and New York parade with giant balloons More

Video For Obama, Ferguson Violence is a Personal Issue

With two years left in term, analysts say, president has less to lose by taking conversation on race further More

Video Italian Espresso Expands Into Space

When Italian astronaut Samantha Cristoforetti headed for the ISS, her countrymen worried how she would survive six months drinking only instant coffee More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
US Community Kicks Off Thanksgiving With Paradei
X
Anush Avetisyan
November 26, 2014 10:57 PM
Thursday is Thanksgiving in the United States, a holiday whose roots go back to the country's earliest days as a British colony. One way Americans celebrate the occasion is with parades. Anush Avetisyan takes us to one such event on the day before Thanksgiving near Washington, where a community's diversity is on display. Joy Wagner narrates
Video

Video US Community Kicks Off Thanksgiving With Parade

Thursday is Thanksgiving in the United States, a holiday whose roots go back to the country's earliest days as a British colony. One way Americans celebrate the occasion is with parades. Anush Avetisyan takes us to one such event on the day before Thanksgiving near Washington, where a community's diversity is on display. Joy Wagner narrates
Video

Video For Obama, Ferguson Violence is a Personal Issue

Throughout the crisis in Ferguson, Missouri, President Barack Obama has urged calm, restraint and respect for the rule of law. But the events in Ferguson have prompted him to call — more openly than he has before — for profound changes to end the racism and distrust that he believes still exists between whites and blacks in the United States. VOA White House correspondent Luis Ramirez reports.
Video

Video Online Magazine Gets Kids Discussing Big Questions

Teen culture in America is often criticized for being superficial. But an online magazine has been encouraging some teenagers to explore deeper issues, and rewarding their efforts. VOA religion reporter Jerome Socolovsky went to this year’s Kidspirit awards ceremony in New York.
Video

Video Aung San Suu Kyi: Myanmar Opposition to Keep Pushing for Constitutional Change

Myanmar opposition leader Aung San Suu Kyi says she and her supporters will continue pushing to amend a constitutional clause that bars her from running for president next year. VOA's Than Lwin Htun reports from the capital Naypyitaw in this report narrated by Colin Lovett.
Video

Video Mali Attempts to Shut Down Ebola Transmission Chain

Senegal and Nigeria were able to stop small Ebola outbreaks by closely monitoring those who had contact with the sick person and quickly isolating anyone with symptoms. Mali is now scrambling to do the same. VOA’s Anne Look reports from Mali on what the country is doing to shut down the chain of transmission.
Video

Video Ukraine Marks Anniversary of Deadly 1930s Famine

During a commemoration for millions who died of starvation in Ukraine in the early 1930s, President Petro Poroshenko lashed out at Soviet-era totalitarianism for causing the deaths and accused today’s Russian-backed rebels in the east of using similar tactics. VOA’s Daniel Shearf reports from Kyiv.
Video

Video Hong Kong Protests at a Crossroads

New public opinion polls in Hong Kong indicate declining support for pro-democracy demonstrations after weeks of street protests. VOA’s Bill Ide in Guangzhou and Pros Laput in Hong Kong spoke with protesters and observers about whether demonstrators have been too aggressive in pushing for change.
Video

Video US Immigration Relief Imminent for Mixed-Status Families

Tens of thousands of undocumented immigrants in the Washington, D.C., area may benefit from a controversial presidential order announced this week. It's not a path to citizenship, as some activists hoped. But it will allow more immigrants who arrived as children or who have citizen children, to avoid deportation and work legally. VOA's Victoria Macchi talks with one young man who benefited from an earlier presidential order, and whose parents may now benefit after years of living in fear.
Video

Video New Skateboard Defies Gravity

A futuristic dream only a couple of decades ago, the hoverboard – a skateboard that floats above the ground - has finally been made possible. While still not ready for mass production, it promises to become a cool mode of transport... at least over some surfaces. VOA’s George Putic reports.
Video

Video Falling Gas Prices Impact US Oil Extraction

With the price of oil now less than $80 a barrel, motorists throughout the United States are benefiting from gas prices below $3 a gallon. But as VOA’s Kane Farabaugh reports, the decreasing price of petroleum has a downside for the hydraulic fracturing industry in the United States.
Video

Video Tensions Build on Korean Peninsula Amid Military Drills

It has been another tense week on the Korean peninsula as Pyongyang threatened to again test nuclear weapons while the U.S. and South Korean forces held joint military exercises in a show of force. VOA’s Brian Padden reports from the Kunsan Air Base in South Korea.
Video

Video Mama Sarah Obama Honored at UN Women’s Entrepreneurship Day

President Barack Obama's step-grandmother is in the United States to raise money to build a $12 million school and hospital center in Kogelo, Kenya, the birthplace of the president's father, Barack Obama, Sr. She was honored for her decades of work to aid poor Kenyans at a Women's Entrepreneurship Day at the United Nations.
Video

Video Ebola Economic Toll Stirs W. Africa Food Security Concerns

The World Bank said Wednesday that it expects the economic impact of the Ebola outbreak on the sub-Saharan economy to cost somewhere betweenf $3 billion to $4 billion - well below a previously-outlined worst-case scenario of $32 billion. Some economists, however, paint a gloomier picture - warning that the disruption to regional markets and trading is considerable. Henry Ridgwell reports from London.
Video

Video Chaos, Abuse Defy Solution in Libya

The political and security crisis in Libya is deepening, with competing governments and, according to Amnesty International, widespread human rights violations committed with impunity. VOA’s Al Pessin reports from London.
Video

Video US Hosts Record 866,000 Foreign Students

Close to 900,000 international students are studying at American universities and colleges, more than ever before. About half of them come from Asia, mostly China. The United States hosts more foreign students than any other country in the world, and its foreign student population is steadily growing. Zlatica Hoke reports.

All About America

AppleAndroid