–Adds Draghi Comments On Growth, Monetary Policy, Upcoming EU Summit

FRANKFURT (MNI) – The European Central Bank’s decision to leave its
key refinancing rate at 1.0% was taken by “a very broad consensus,” but
“a few members would have preferred to have a rate cut today,” ECB
President Mario Draghi said Thursday.

“This decision was taken by consensus and the discussion was quite
complete. It was taken by very broad consensus,” Draghi told reporters
at a press conference here.

The word “consensus” is generally understood to be ECB code
language meaning the decision was not unanimous – a fact that Draghi
subsequently confirmed with his admission that some members had wanted
to cut rates. He quickly elaborated, however, that “not many” members
had argued for a rate cut.

Asked why the ECB did not reduce interest rates, Draghi noted that
nominal rates at their current level are low and real rates are
negative.

He also said that it was unclear what the impact of such a move
would be in the current environment, in which interbank markets are not
functioning properly and sovereign spreads among EMU states — unlike
two years ago — are very divergent.

While it was not a reason behind today’s decision, “it is a reason
for studying carefully what effects these price signals that belong to
conventional policy would have in an unconventional, non-traditional
market setting in Europe,” Draghi said.

Draghi also noted recent weak economic data out of the Eurozone,
and said that the ECB stands ready to act if the weakness persists.

Recent confidence indices and orders “pointed in the same direction
and this was not upwards,” Draghi said.

“We are fully aware that the most recent soft data are [on the]
downside. That is why you will find several references to downside risk.
And we will monitor closely all developments and we stand ready to act,”
he added.

Draghi said the ECB staff’s decision to keep the 2012 GDP growth
forecast unchanged rather than revising them down assumed a positive
contribution from external demand and that financial tensions would
ease.

In response to a reporter’s question, Draghi underscored that his
introductory statement did not say “the worst is over, but that there
are serious downside risks.” The most recent signs of economic weakness
in Eurozone might be attributable to the credit tightening seen last
year, he added, noting that financial market tensions are not as serious
now as they were back then.

“To a great extent, I would say not all of them, but many of the
stress indicators are now slightly better in spite of the worsening of
the recent time, slightly better than what they were in November,”
Draghi said.

The ECB president conceded the European crisis is having some
impact on the rest of the world, but argued that the extent of it may be
exaggerated.

“There are some parts of this crisis that unavoidably effect the
rest of the world,” he said. “If this economy weakens, we certainly are
going to have some impact on the rest of the world.” This would happen
more through inter-linked global financial markets than through the
traditional multiplier effect, he said.

However, “I don’t think we should carry this reasoning too far,”
Draghi added. “Each country has its own responsibilities, its own policy
problems. I think it’s not balanced to say that only Europe has a
responsibility.”

The ECB chief denied that there was any horse trading between ECB
monetary policy decisions and progress by EMU governments towards
greater integration of the euro area.

“There’s never been a quid pro quo between monetary policy
decisions and fiscal ones, but these are high level decisions which
concern the future of European integration and the euro area,” he said.
“It would not be proper for us, or for the counter-parties. These
processes have their own independent legislative rules and they can’t be
subject to monetary policy-making decisions.”

Draghi said that at the next EU summit to be held at the end of
June, leaders will have to clarify their long-term vision for the
political shape of the Eurozone.

“What we all expect is a clarification of this vision,” he said.
“When we say vision, we may use it too much as a word, but we [should]
have a path towards an objective, with all the conditions that have to
be satisfied in order to achieve this objective.”

He said that like the original blueprint for the euro, leaders now
must spell out a “methodology,” as well as “dates, deadlines and
conditions.”

–London newsroom 0044 207 862 7492; email:ukeditorial@marketnews.com

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