ECB president cautious about Europe’s economic recovery

The president of the European Central Bank, Mario Draghi yesterday expressed caution on  the health of the eurozone despite the 17-nation bloc's emergence from recession earlier this year.

"I'm very, very cautious about the recovery. The shoots are very green," Draghi said at his monthly press conference in Frankfurt, adding, "Risks continue to remain to the downside."

Though the ECB kept its main refinancing rate on hold yesterday, Draghi signalled that action would follow if money markets were to continue to tighten across the eurozone, jeopardising growth.

"We will remain particularly attentive to the implications that these developments may have to the stance of monetary policy" he said. 

Like the Bank of England, Draghi was trying to make it clear to financial markets that he would keep base rates low until the firm establishment of the recovery.

He added yesterday, that monetary policy would continue to be accommodative for as long as necessary.  Draghi's comments pushed the euro about half a cent lower against the dollar to $1.31, a six-week low.

The ECB yesterday also projected a decline in the  eurozone economy by 0.4 per cent in 2013, after a 0.6 per cent decline in June. The central bank however, downgraded its 2014 forecast from 1.1 per cent previously to 1 per cent.

Draghi also ruled out handing Greece a debt relief lifeline, even as finance ministers admitted hours earlier that Athens would need additional aid next year.

Draghi firmly ruled out ECB's participating in any debt restructuring, even amidst increasing speculation that Greece would be unable to fully return to the financial markets when its current bailout ended in 2014.

"It is pretty clear that we cannot do monetary financing," Draghi told reporters. He insisted that the ECB's own treaty made it impossible.

Responding to a direct question as to whether ECB would take part in any Greek debt relief, he ruled out the possibility and made it clear any future assistance for Greece would also come with strings attached, or "conditionality".

Greece was faced with a funding gap of up to €11 billion in the second half of 2014, the International Monetary Fund figures showed. Rumours had been rife in recent weeks that a third bailout would be needed.

Dutch finance minister Jeroen Dijsselbloem, who also chaired the eurogroup of finance ministers, made it clear to MEPs (Members of European Parliament) that euro governments would need to consider some extra help for Greece soon.

He said at the European parliament, that it was "realistic to assume that additional support will be needed" with the conclusion of the present bailout  at the end of next year.