DAVOS, Switzerland (MNI) – The European Central Bank’s efforts to
inject funds into the Eurozone banking system are showing signs of
success in preventing a credit crunch, ECB President Mario Draghi said
Friday.
Speaking to the World Economic Forum here, Draghi noted that banks
have begun raise funds again in the unsecured bond market and have so
far been able to repay a huge amount of debt coming due without
tightening credit conditions.
“We have avoided a major, major credit crunch and a major funding
crisis,” Draghi said.
The ECB has no evidence yet that the funds borrowed from the ECB
are being lent by banks to support economic growth, Draghi conceded.
But since “the identity of the banks that borrow is different from the
identity of the banks that deposit” with the ECB, he said he believed
the funds were circulating through the economy.
He added that it was too soon to say that conditions had returned
to normal, because the interbank market is still not functioning
properly. Spreads on European government bond markets are showing signs
of easing, but markets are still exaggerating of risks of sovereign
debt, he said.
Draghi repeated that there has also been major progress on European
governance reform, including the fiscal compact that may be approved by
European Union leaders at Monday’s summit in Brussels.
“This treaty is important because it is the first step, though
timid and hesitating, toward a fiscal union,” he said.
–Paris newsroom, +33142715540; jduffy@marketnews.com
[TOPICS: M$$CR$,MFX$$$,MGX$$$,M$$EC$,M$X$$$]
