FRANKFURT — The European Central Bank left its main interest rate unchanged Wednesday, choosing to put the onus on political leaders to address an increasingly dangerous level of tension in the euro zone.
The E.C.B. kept its benchmark rate at 1 percent, where it has been since December. Noting the increased level of stress in Europe and signs of flagging growth, the E.C.B. promised to continue providing banks with effectively unlimited low-interest loans at least through the end of the year.
Banks will be able to borrow as much as they want, provided they supply collateral.
While most analysts had not expected the E.C.B. to cut rates at its monthly meeting Wednesday, there was growing speculation that the governing council might cut below 1 percent for the first time in an attempt to restore confidence in the euro zone.
The bank and its president, Mario Draghi, appear to have decided to wait at least another month so as not to encourage complacency by political leaders.
Mr. Draghi and other top E.C.B. officials have repeatedly stressed they lack the tools or the mandate to address the underlying problems in the euro-zone economy and the banking system.
“Central banks are not central to delivering long-term economic growth,” Benoît Coeuré, a member of the E.C.B. executive board, said last week.
“Long-term growth is about education, innovation and the functioning of markets, none of which is really in our hands.”
By keeping its firepower in reserve for now, the E.C.B. put pressure on political leaders to weave the euro zone more closely together, for example by sharing the cost of bank bailouts and giving up more control over government spending to European authorities.
The E.C.B. may also be concerned that earlier measures to try to calm tensions in the banking system have had unwanted side effects. For example, Spanish banks used inexpensive E.C.B. credit to buy Spanish government bonds.
That helped lower the government’s borrowing costs, but also made Spanish banks vulnerable to the fortunes of their hard-pressed government.
There have been signs in recent days that political leaders are picking up the pace of their efforts to unify the euro zone into something more closely resembling a United States of Europe.
Germany appears to be open to pooling excess debt into a common fund, where it would be slowly paid off.
On Wednesday, the European Commission announced a plan for more coordinated oversight of large banks, in part to prevent problems at one institution from spreading throughout the system, as has happened with Bankia in Spain.
The commission plan would shift the cost of bailouts to the banking industry and bondholders, though the measures would not be in place in time to help Spain deal with Bankia.
Bank bailouts have contributed to the sovereign debt crisis by putting stress on government budgets, as has been happening in Spain. Leaders seem to be responding to Mr. Draghi’s call last month for a “bold leap” toward a more cohesive euro zone.
But by keeping rates on hold, the E.C.B. appeared to be signaling that it would like to see more concrete steps, not just proclamations or statements of good intent.
“From the E.C.B. perspective, there is likely to be frustration at euro area governments’ seeming inability to deploy the collective mechanisms they developed,” analysts at Barclays said in a note to clients Wednesday.
“The E.C.B.’s inaction so far seems to reflect an attempt to put greater pressure on governments to address fiscal and banking issues.”
nytimes.com
The E.C.B. kept its benchmark rate at 1 percent, where it has been since December. Noting the increased level of stress in Europe and signs of flagging growth, the E.C.B. promised to continue providing banks with effectively unlimited low-interest loans at least through the end of the year.
Banks will be able to borrow as much as they want, provided they supply collateral.
While most analysts had not expected the E.C.B. to cut rates at its monthly meeting Wednesday, there was growing speculation that the governing council might cut below 1 percent for the first time in an attempt to restore confidence in the euro zone.
The bank and its president, Mario Draghi, appear to have decided to wait at least another month so as not to encourage complacency by political leaders.
Mr. Draghi and other top E.C.B. officials have repeatedly stressed they lack the tools or the mandate to address the underlying problems in the euro-zone economy and the banking system.
“Central banks are not central to delivering long-term economic growth,” Benoît Coeuré, a member of the E.C.B. executive board, said last week.
“Long-term growth is about education, innovation and the functioning of markets, none of which is really in our hands.”
By keeping its firepower in reserve for now, the E.C.B. put pressure on political leaders to weave the euro zone more closely together, for example by sharing the cost of bank bailouts and giving up more control over government spending to European authorities.
The E.C.B. may also be concerned that earlier measures to try to calm tensions in the banking system have had unwanted side effects. For example, Spanish banks used inexpensive E.C.B. credit to buy Spanish government bonds.
That helped lower the government’s borrowing costs, but also made Spanish banks vulnerable to the fortunes of their hard-pressed government.
There have been signs in recent days that political leaders are picking up the pace of their efforts to unify the euro zone into something more closely resembling a United States of Europe.
Germany appears to be open to pooling excess debt into a common fund, where it would be slowly paid off.
On Wednesday, the European Commission announced a plan for more coordinated oversight of large banks, in part to prevent problems at one institution from spreading throughout the system, as has happened with Bankia in Spain.
The commission plan would shift the cost of bailouts to the banking industry and bondholders, though the measures would not be in place in time to help Spain deal with Bankia.
Bank bailouts have contributed to the sovereign debt crisis by putting stress on government budgets, as has been happening in Spain. Leaders seem to be responding to Mr. Draghi’s call last month for a “bold leap” toward a more cohesive euro zone.
But by keeping rates on hold, the E.C.B. appeared to be signaling that it would like to see more concrete steps, not just proclamations or statements of good intent.
“From the E.C.B. perspective, there is likely to be frustration at euro area governments’ seeming inability to deploy the collective mechanisms they developed,” analysts at Barclays said in a note to clients Wednesday.
“The E.C.B.’s inaction so far seems to reflect an attempt to put greater pressure on governments to address fiscal and banking issues.”
nytimes.com
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