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ECB's Draghi Set For Grilling As Industry Falters

Associated Press
Monday July 14, 2014 5:49 AM

LONDON (AP) — European Central Bank President Mario Draghi is likely to face a barrage of questions Monday from lawmakers asking what can be done to reduce the value of the euro amid further signs the recovery in the 18-country eurozone is faltering.

The ECB is coming under increasing pressure to do more to stem the strength of the euro, which is hurting exporters and keeping a lid on the region's recovery from recession.

At around $1.36, the euro is down from its 2014 high of just below the $1.40 mark in May but remains well above its historic average. Everyone from German carmakers to Greek yoghurt makers are finding it more difficult to sell their wares.

Figures earlier suggested that the recovery in the eurozone is flagging. Official figures showed industrial production down a monthly rate of 1.1 percent in May. That took the annual rate of decline to 0.5 percent and stoked fears that industry will fare worse in the second quarter of the year than the first, thereby dampening growth. During the first quarter of 2014, the eurozone grew by a paltry 0.2 percent.

"Although the decline is likely to have been temporary, the disappointing numbers add to evidence that economic growth in the region is slowing," said Chris Williamson, chief economist at Markit.

With the economy barely growing and not creating many jobs, politicians are piling pressure on the central bank. If needed, the ECB could further loosen its monetary policy through interest rate cuts or launch a monetary stimulus similar to those undertaken by the U.S. Federal Reserve and the Bank of England. Those programs involve injecting new money into the economy by buying large amounts of bonds and other financial assets.

Few economists think Draghi and the ECB want to go down that route, partly because of technical problems such as how to buy assets — and which ones — across a currency bloc comprising 18 countries. However, Draghi has said such a program, called quantitative easing or QE, is within the bank's mandate and could be used if needed.

For now, Draghi is expected to resist the pressure.

"For the time being, it seems likely that Draghi will stick with attempting to talk the euro lower," said Jane Foley, senior currency strategist at Rabobank International.

The calls on Draghi to do more may become more acute in the coming months if growth remains anemic and inflation, at 0.5 percent, stays below the ECB's target of just below 2 percent.

The ECB has not sat on the sidelines in recent months and is currently reviewing the finances of Europe's largest financial groups and given them cheap loans to help get credit to businesses. It has reduced its benchmark interest rate to a record low of 0.15 percent and set a negative rate for the deposits bank keep at the central bank in the hope that pushes them to lend more.

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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