ECB Leaves Rates At Record Low As Europe Struggles
Draghi told reporters following the ECB's monthly policy-setting meeting that it was now up to governments to get their economies growing. The chief risk to the expected recovery is "slow implementation of structural reforms in the euro area."
While governments have cut spending to control their debts, they have been slower to bring in longer-term structural reforms. Those include ending two-tier labor markets where older workers have strong protections but companies are reluctant to hire young ones because they can't shed workers in a downturn.
The ECB president's comments underlined a growing belief among analysts that the bank has finished cutting rates.
Joerg Kraemer, chief economist at Commerzbank, said recovery would mean the ECB might leave rates unchanged for all of this year. The rise in sentiment indicators "suggests that the recession in eurozone is likely to come to an end in spring," he wrote in a research note. "This makes a further ECB rate cut unlikely."A further rate cut by the ECB would in theory encourage more economic activity by making it easier for consumers and businesses to borrow, spend and invest. But Draghi said that rates were already low enough to spur growth â¿¿ and would contribute to a gradual rebound. The decision to hold off rates and Draghi's statement that the decision was "unanimous" caused the euro, the currency used by 17 EU countries, to rally 1 percent to $1.3191. A currency's value usually tracks expectations of interest rates, with lower rates often sending it lower because investors expect less return on interest-bearing investments in that currency. The main weapon used by the ECB to ease the currency union's crisis over too much government debt was an offer finalized in September to buy the bonds of heavily indebted countries, on condition that they tap a European financial aid program and promise to reduce their deficits. No country has asked for the help, but the mere offer has seen dramatic falls in bond market borrowing costs for Spain and Italy.
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