MILAN (MNI) – Interest rates in the Eurozone are very
accommodative, European Central Governing Council member Mario Draghi
said Monday.
Interest rates are still very low in nominal terms and in real
terms theyre negative, the governor of the Bank of Italy said in
response to questions following a presentation to university students
here.
The comments are in line with the recent hawkish turn of the ECB,
which began preparing markets for an interest rate hike at its meeting
earlier this month.
Draghi, seen as one of the top contenders to take over the helm of
the ECB when President Jean-Claude Trichet steps down later this year,
went on to say that in assuring price stability, monetary policy
promotes growth by lowering risk premiums.
In order to achieve price stability, Eurozone countries must do
their part as well by making structural reforms that will reduce the
imbalances among their economies, he said.
The divergence between the ECBs more hawkish tendency of late and
the Federal Reserve, which has signaled that interest rates will not
rise soon, is due to the different mandates of the two central banks,
Draghi explained.
The ECB has the mandate only to guarantee price stability in the
medium term, while the Fed has this mandate but also the mandate to
guarantee growth, he said.
The context is also different,” he noted. “The high debt level of
households in the U.S. and the situation on the housing market, which
has still not emerged from the slump that began three years ago, as well
as the high level of unemployment and the need to keep consumer spending
high also help explain the divergence between monetary policy in the
U.S. and the Eurozone.
Japan will probably have to spend massively to repair and replace
what was destroyed in the recent earthquake and tsunami — a situation
that will have to be watched closely and confronted through
international cooperation, Draghi said.
When asked about the difficulties in the Eurozone linked to the
growth in the number of countries that use the single currency, Draghi
noted that the very success of the euro was due to the fact that it is
used by many countries.
Reforms in the governance of the Eurozone must be made, but they
were needed before its enlargement and not due to the incorporation of
new members.
The problem is not so much the enlargement of the euro area, but
rather that the problems that already existed should have been dealt
with before enlargement, Draghi said.
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