ECB President Draghi: European stimulus will continue

AP News
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Posted: May 14, 2015 12:48 PM
ECB President Draghi: European stimulus will continue

WASHINGTON (AP) — European Central Bank chief Mario Draghi said the ECB's economic stimulus program is working but needs more time to bring European inflation back to healthier levels and restore consumer and business confidence.

Speaking Thursday at the International Monetary Fund, Draghi said the program — involving 1.1 trillion euros ($1.3 trillion) in bond purchases — has "proven so far to be potent, more so than many observers anticipated."

Earlier this week, in fact, the 19 countries that use the euro currency reported the fastest economic growth in two years. And eurozone consumer prices stopped falling last month. The inflation report reduced fears that the region was in danger of slipping into a growth-killing spiral in which consumers put off spending because they expect future prices will be lower.

But Draghi was not ready to declare victory over Europe's long struggle with economic stagnation.

"After almost seven years of a debilitating sequence of crises, firms and households are very hesitant to take on economic risk," he said.

He vowed that the bond-buying program "will stay in place as long as needed for its objective to be fully achieved on a truly sustained basis."

The ECB is buying 60 billion euros a month in government and corporate bonds using newly created money. Increasing the supply of money in the economy can raise inflation. The stimulus is also lowering market borrowing rates, which tends to boost lending and, by extension, economic activity. And it is pushing down the value of the euro, giving European exporters a price edge in world markets.

The U.S. Federal Reserve, Bank of England and Bank of Japan have also used bond purchases, or quantitative easing, to stimulate weak economies.