Too much liquidity, generated by a too lax monetary policy and protracted over time, can fuel financial bubbles. In such an environment, low interest rates can have an effect on investors' ability to make profits and the existence of ample liquidity can reduce banks' drive to control credit risks. The president of the ECB said Mario Draghi, during a hearing at the European Parliament in Brussels.
“There is still no improvement in the real economy, although there are signs of stabilization – continued Draghi -. 2013 began with a more stable picture than in recent years thanks to government reforms, but more important efforts are needed for the EU to emerge from the crisis and recreate confidence and growth”.
Economic indicators "still signal weakness at the beginning of 2013" in the euro area, however "the economic weakness is expected to be followed by a very gradual recovery later in the year".
As for the exchange rate tensions that led the G-20 last weekend to ask for a commitment from the central banks to avoid a currency war, Draghi said that "the exchange rate is not a political objective, but it is an element important for price stability and the recovery”.
