Slight lift in mood on euro crisis after leaders' latest response to debacle
ANALYSIS:The Government’s tentative return to debt markets prompted lavish praise from the ECB chief, writes ARTHUR BEESLEYin Frankfurt
THE EUROPEAN Central Bank has cut interest rates to a record low but it is refusing to yield to demands for a new round of extraordinary measures to ease the turmoil in the euro zone.
It is a measure of the speed at which the debt crisis moves that ECB chief Mario Draghi felt at liberty to cite a modest improvement in market sentiment in recent days. This had no small bearing on the Government’s decision to make a tentative return to debt markets yesterday, prompting lavish praise from Draghi.
In the backdrop, of course, is the latest move by EU leaders to intensify their response to the debacle. In addition to taking steps towards a euro zone banking union, they have resolved to allow direct bailout aid from Europe for Spain’s banks and have freed the European Financial Stability Facility and European Stability Mechanism rescue funds to buy up Italian bonds. The execution of these decisions is riddled with technical and legal complexity, and potential for delay and serious political strife. But this still marks progress.
Draghi made the point in relation to Spain that any increase in its national debt would be but temporary if the European bailout of its banks went ahead before the direct aid could be deployed. This would have an important signalling effect to investors, he said.
At the same time, he avoided answering questions about the significance to Ireland of the push for direct bank aid, or his view of the optimal outcome of the imminent review by euro zone finance ministers of the Irish bank rescue.
What is clear is that the ECB’s stance on Ireland’s banks is evolving. Time was the bank blanked all talk of new arrangements. Last spring, however, it gave tacit support to a deal in which Dublin deferred a €3 billion cash payment to the former Anglo Irish Bank.
The ECB never explicitly backed direct European aid for Irish banks, but Draghi welcomed EU leaders’ decision to go down this road. What is more, ECB executive board member Jörg Asmussen was instrumental in securing a reference to Ireland’s banking rescue in the euro zone communique last Friday morning. Draghi’s introductory statement at his press conference yesterday was weighed down with cautious language about the prevailing sense of “heightened uncertainty” in the euro zone and the materialisation in downside risks to economic growth in recent months. Last month the bank held rates steady even though some of its governors wanted a reduction. The decision to cut rates yesterday was unanimous, Draghi said.