AMSTERDAM (AP) — European Central Bank head Mario Draghi said Monday that while the bank had averted financial "panic" in the euro union, it was still up to politicians to solve the region's core problems of strengthening the banking system and improving long-term growth.
The head of Europe's monetary authority said in a speech delivered in Amsterdam that the central bank had already warded off "fire sales" by investors through emergency measures. Those included launching €1 trillion ($1.3 trillion) in cheap, three-year loans to banks to steady their finances and helping lower the borrowing costs of indebted countries by offering to buy government bonds on the open market.
Nonetheless, the economy of the 17 European Union countries that use the euro is mired in recession and is suffering from record unemployment. Meanwhile, borrowing conditions across the eurozone are fragmented: Companies in the indebted countries are paying more to borrow due to troubled government and bank finances than their more financially stable neighbors.
Draghi hasn't ruled out further stimulus from the central bank — including interest rate cuts or new measures to get credit flowing to the small and midsize companies.
However, he said Monday, those steps only buy time. Governments must pass structural reforms to make their economies more competitive and business-friendly, such as easing rules on hiring and firing people. The aim would be to improve growth that would, in turn, improve tax revenues and help governments shrink debt long-term.
"To conclusively address the root causes of the crisis these efforts need to be maintained and, in some countries, stepped up," he said.
"Let me be clear: undertaking structural reforms, budget consolidation and restoring bank balance sheet health is neither the responsibility nor the mandate of monetary policy."
Draghi did not appear to rule out further emergency actions by the central bank but gave little hint what those could be. He did mention so-called quantitative easing efforts by other central banks such as the U.S. Federal Reserve and Bank of Japan to purchase of securities from banks. This adds new money to the economy and can drive down longer term interest rates.
However, he said, those policies were "tailor made" for those large single economies. Introducing such a scheme across the 17 countries of the eurozone would be complicated and Draghi warned there was "no uncontroversial way" to determine what the target interest rate would be. It's also unclear how the bank would decide which countries' bonds to buy.
Draghi in particular urged quick action to set up a single European authority that can wind down busted banks and protect euro member governments from heavy losses.
Troubled banks have contributed to the bloc's three-year debt crisis. Most recently, they helped pull down the public finances of Cyprus, which became the latest eurozone country to need a bailout.
Draghi said such an authority would wind up banks "without reinforcing the vicious link between banks" and government finances.
European leaders have said they intend to set up such a resolution authority but action on the proposal has lagged.
McHugh contributed from Frankfurt, Germany.