Business

ECB chief U-turns on eurozone stimulus

Mario Draghi admits ‘additional stimulus will be required’ if the economic outlook for the stuttering region does not improve.

Outgoing European Central Bank President Mario Draghi has said he would be open to boosting monetary stimulus if economic conditions in Europe do not improve, drawing an immediate rebuke from Donald Trump and concerns it could provoke a currency war.

In one of his last major speeches before stepping down as Europe’s top banker, Draghi admitted that “additional stimulus will be required” if the economic outlook for the stuttering region does not improve, “signalling one of the biggest policy reversals of his eight-year tenure”, reports Reuters.

Julia Horowitz for CNN Business says this “could mean interest rate cuts or the revival of a quantitative easing program that involves creating new money to buy assets such as government bonds”.Draghi’s remarks sent stocks higher and drove the euro down as much as 0.3% against the US dollar.This provoked the ire of Donald Trump, who accused the ECB of unfairly manipulating the euro, “further raising the stakes for Washington in its trade and diplomatic disputes around the world”, says The Guardian.

Reuters reports that “with four years of unprecedented stimulus to revive the eurozone economy slowly bearing fruit, the ECB had been preparing markets for policy tightening, dubbed ‘normalisation’ — only to see a global trade war derail its plans within months”.

Growth in key member states, including Germany, Europe’s largest economy, has come close to stalling this year, while Italy slid into recession.

The ECB predicts that growth in the 19 countries that use the euro will slow to 1.2% this year from 1.8% in 2018. CNN says the forecast “reflects ongoing concerns about Britain's potential departure from the European Union, and the negative effect of rising global trade tensions”.

“But the ECB is not alone in having to backtrack,” says Reuters, adding that “after abandoning interest rate hikes, the US Federal Reserve may this week signal cuts in borrowing costs as global turmoil erodes confidence, hitting stocks and global trade”.

US shares surged to their highest level in six weeks yesterday after “investor hopes for an interest rate cut from the Federal Reserve in coming months were bolstered after the European Central Bank indicated that it would be willing to do the same,” reports the BBC.

However, “the slowdown in the eurozone may threaten to unpick Draghi’s legacy” says the Guardian, with the Italian “widely seen as having saved the euro after a promise in 2012 to do ‘whatever it takes’ during the sovereign debt crisis”.