I negative data on Italy's GDP “I'm not surprised”, given that forecasts for the country had been repeatedly revised downwards, so “it is quite clear that the priority is to restore economic growth and employment: and Italy knows how to do it”. The president of the ECB said Mario Draghi, in the press conference at the end of the Governing Council.
“It is very important that these priorities are pursued without causing interest rate increases”, added the number one of Eurotwer, explaining that the increases in financing costs have recessive effects.
As regards the details on the terms of the new round of soft refinancing operations for banks (More), expected in the autumn, will be "communicated at the next meeting" of the ECB. On this front, Draghi partially disappointed the expectations of the markets, which were already expecting a few more details today. However, the President of the ECB reiterated that the phase of weakness of the Eurozone economy is continuing and therefore an accommodating monetary policy will remain necessary also in the future. As a result, interest rates will remain at zero no longer until July, but at least until the end of 2019.
The data received in recent weeks “confirm that the slowdown in economic growth is extending into the first part of the year, even if there are signs that some factors holding back are fading - Draghi explained in the press conference at the end of the Governing Council - The risks to the growth prospects in the euro area remain tilted to the downside due to the lingering uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets”.
To those who asked him if the Governing Council had discussed a possible second Quantitative Easing, Draghi replied: “What the Governing Council has done today is an assessment of the economic outlook and reassert the readiness of the ECB to use every possible tool to deal with whatever the contingency may occur. I would unanimously say this”.
Draghi also specified that the ECB is evaluating the possibility of mitigating the impact of negative rates on banks in the event that side effects emerge. In particular, the Eurotower technicians have studied the hypothesis of introducing a graduated rate on deposits, which would allow banks to have a partial exemption from paying the interest rate on reserves parked at the ECB.
As regards the trade wars launched by the American president, Donald Trump, "we have to see what will happen in practice - said the number one of the ECB - but certainly the fact that these threats of protectionist measures are repeated several times certainly has an impact on the general climate of confidence. There is no doubt that one of the factors of weakness in Europe and in the world is due to the weakening of confidence resulting from various threats, including those related to further protectionist measures”.
Meanwhile, a warning also comes from International Monetary Fund: “Italy's budgetary difficulties have reignited fears over the link between sovereign debt and the financial sector in the euro area”, reads the Global Financial Stability Report.
According to the IMF, even if banks' capital ratios are higher and measures have been taken to reduce non-performing loans since the 2011 Euroland crisis, "there is still the risk of a rekindling of the link between sovereign debt and financial sector” in the euro area. This was stated by the IMF in.
The banking system's portfolio of government bonds "is relatively large compared to the assets in some countries, in particular Belgium, Italy, Portugal and Spain", underlines the Fund, which, citing EBA data, observes how government bonds with lower ratings in Italian and Portuguese banks increased after sovereign rating downgrades. “Increasing exposure to government bonds and sovereign rating downgrades – continues the report – have made banks in some countries more vulnerable to sovereign debt shocks”.
The work of the spring session of the IMF opens tomorrow, in a particularly delicate moment for the world economy.
