ECB's Draghi Says Governments Need To Move Quickly on EFSF Fund

In a speech to bankers and government officials on Friday, ECB President Mario Draghi demanded quick implementation of the Eurozone's crisis response measures. The WSJ notes that Mr. Draghi’s comments are indicative of a growing frustration regarding the pace of measures designed to halt the growing credit contagion.

"Where is the implementation of these long-standing decisions? We should not be waiting any longer," Draghi told the group.

Specifically, Draghi referenced the lack of progress toward the implementation of the expanded mandate and firepower for the EFSF. The ECB President expressed frustration at the lack of progress and said that the Eurozone governments should act quickly to get the fund up and running.

Recall that the EFSF bond offerings have been met with a lukewarm response over the past two weeks, due in large part to the uncertainty of how the funds will be used. Until the EFSF can define exactly how the fund will be leveraged, investors from China and the IMF appear to be standing aside.

At the latest Eurozone summit, a December deadline was established for strengthening the EFSF. However, thus far, little progress has been made and bond investors have expressed little interest in putting money into the fund on blind faith.

Draghi also underscored the growing uncertainty with regard to the economic outlook in the Eurozone.

"Activity is expected to weaken in most of the advanced economies," the ECB President said. "In the euro area, downside risks to the economic outlook have increased."

Draghi also addressed the growing expectations for the ECB to be the lender of last resort and the idea of implementing a massive quantitative easing program similar to those seen in the U.S. and the U.K.

Mr. Draghi reiterated that a QE program would not be in keeping with the single mandate of the ECB and that implementation could hurt the credibility of the central bank. The ECB President reminded the audience that the central bank’s primary goal is to maintain price stability (inflation).

Reuters reported that ECB Executive Board Member Jose Manuel Gonzalez-Paramo said at a conference on Friday that quantitative easing would not be a magic solution to the Eurozone sovereign debt crisis, adding that its results have not been proven in countries such as the US or UK. He also said that the central bank can only act within its mandate.

Thus, it would appear that there is no ECB “Bazooka” looming.

 

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