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European Central Bank ready to help eurozone after Brexit vote

Published 21/07/2016

President of the European Central Bank Mario Draghi said the bank is monitoring any fallout from the Brexit vote (AP)
President of the European Central Bank Mario Draghi said the bank is monitoring any fallout from the Brexit vote (AP)

The European Central Bank has said it is ready to give the eurozone a further dose of stimulus if Britain's vote to leave the European Union starts to impact on the region's economy.

But president Mario Draghi stressed the bank will need more time to monitor the situation, and he refrained from giving any clearer indication of what would push its hand.

It is feared the unprecedented Brexit vote could damage trade in the region and impact on business confidence, with the establishment of new trade relations potentially years away.

While it is still too early to tell what the full effect of the vote will be, many businesses in Europe are expressing concern.

At its first meeting since the June 23 vote, the ECB decided to leave its key interest rates on hold at record lows.

But at a subsequent news conference, Mr Draghi said the central bank has the "readiness, willingness, ability" to help the eurozone economy.

"Over the coming months, when we have more information, including new staff projections, we will be in a better position to reassess the underlying macroeconomic conditions," he said.

Analysts say the ECB could opt later this year - in autumn or winter - to extend its bond-buying stimulus programme past its expiry date of March 2017.

Under the programme, the ECB currently buys 80 billion euro (£66.7 billion) in bonds a month. The step pumps newly created money into the banking system, and the hope is that will increase lending and raise inflation to levels more consistent with steady growth.

That programme is ongoing and was stepped up as recently as March, meaning the ECB has not yet had a chance to see the full impact of the stimulus.

Beyond the bond-buying, the central bank has lowered its benchmark interest rate for lending to banks to zero. And it has imposed a negative rate on deposits left with it by commercial banks of 0.4%, a penalty intended to push them to lend the money.

Europe is enjoying a modest economic recovery but inflation of 0.1% is abnormally low and unemployment is falling too slowly to make people in countries such as Spain and Greece feel good about the economy.


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