BRUSSELS (MNI) – European Central Bank President Mario Draghi said
Monday that he was “satisfied” with the central bank’s program of
three-year loans to EU financial institutions, saying that it had helped
to avert a looming “funding emergency” in the first quarter of this
year.

“The unsecured bond market was completely non-functioning until we
launched the facility,” Draghi told the European Parliament’s Economic
and Monetary Affairs Committee in Strasbourg.

Addressing critics who argue that the increase in the amount of
money that banks deposit with the ECB shows that the ECB’s efforts to
unclog the interbank lending market have been unsuccessful, Draghi said,
“You cannot say in general really that the increase in the deposit
facility shows that money is not circulating in the economy.”

“When we look at the identity of the banks that borrow, by and
large, it is different from the identity of the banks that redeposit
money. This means that the money has circulated,” he said. “We went bank
by bank to see how many bank bonds were due for that specific bank in
the first quarter and their bidding behavior was highly influenced by
the amount of bonds coming due at that time,” he said.

“The LTRO of almost E500 billion has functioned, is functioning,”
Draghi said. “But we have to give it time.”

Invited to speak to EU lawmakers in his capacity as chairman of the
European Systemic Risk Board, Draghi said that the fiscal consolidation
efforts of governments across Europe was “encouraging”. But he called on
leaders to push through structural reforms to boost growth, job
creation, and competitiveness in order to counteract the inevitable
dampening effect that such fiscal tightening has in the short term.

Amid reports that EU governments are attempting to water down the
strength of the new “fiscal compact” with loopholes, Draghi said, “The
ECB within its primary mandate of price stability and the treaty
will do whatever it takes to ensure financial stability. But there
has to be a fiscal compact that people can actually trust.”

Commenting on the ongoing tense negotiations between the Greek
government and its international bond holders, Draghi said that a
“realistic outcome is an outcome which would yield with a degree of
realism, a debt to GDP ratio of 120% by 2020″ — as agreed by EU leaders
last year.

–Brussels bureau: +324-9522-8374; pkoh@marketnews.com

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