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Updated June 15, 2012, 7:18 a.m. ET
Draghi Hints ECB Is Ready to Act
By TODD BUELL And MARGIT FEHER
European Central Bank President Mario Draghi on Friday suggested the central bank may be ready to answer calls to ease monetary conditions in the euro zone, as risks to the financial system intensify and the bloc braces for elections in Greece this weekend that could decide the country's future in the currency.
Mr. Draghi told a conference in Frankfurt the ECB would continue its "crucial role" of providing liquidity to sound banks against appropriate collateral. He said inflation expectations in the euro zone were well anchored and that there were no inflationary threats.
Providing liquidity "is what we have done throughout the crisis, faithful to our mandate of maintaining price stability over the medium term, and this is what we will continue to do," Mr. Draghi said. The Eurosystem, the ECB and the 17 national central banks that use the single currency "will continue to supply liquidity to solvent banks where needed," he added.
Analysts said Mr. Draghi's comments suggest he is leaving the door open for policy easing. "In a nutshell, Draghi suggests that the ECB is ready to act, but the move seems to be conditional [upon] structural changes, as often repeated since the start of the debt crisis," Newedge economist Annalisa Piazza said in a research note.
In his comments, Mr. Draghi also stressed the importance of strengthening the growth potential of Europe's economies.
The ECB left its main interest rate on hold at a low of 1% last week, but Mr. Draghi conceded that a few members of the central bank's governing council wanted to cut rates, implying that lower rates may be on the horizon.
Mr. Draghi's comments come as instability in the single-currency area increases ahead of Greek parliamentary elections on Sunday, a vote widely viewed as a referendum on the country's future in the euro zone.
Fears that Greece's economic turmoil could further damage vulnerable economies in the euro zone have pushed Spanish and Italian borrowing costs to record highs in recent days. Spain's 10-year borrowing rates hovered around 7% on Thursday; Greece, Portugal and Ireland requested bailout assistance when their funding costs surpassed similar levels.
Greek banks borrowed €62.02 billion ($78.32 billion) from the ECB in April, data showed earlier this week. The country is receiving emergency international funding to keep its economy afloat, subject to its meeting harsh cost-cutting conditions.
The Institute of International Finance, a global association of financial firms, has said Greece's emergency bailout-program targets should be relaxed and that the country might need between €20 billion and €30 billion more in financial aid. Greece has already received two international bailouts over the past two years.
In his speech, Mr. Draghi also suggested the European decision-making process needs to become more democratic. "At some point, when supranational institutions and processes continually gain influence, the need for greater political legitimacy becomes more and more pressing," he said.
Mr. Draghi's comments come as he and other European policy makers work together to map out a vision for the future of Europe ahead of a meeting of leaders at the end of this month. He said details on this will be released soon.
Write to Todd Buell at
todd.buell@dowjones.com or to Margit Feher at
margit.feher@dowjones.comWrite to Todd Buell at
todd.buell@dowjones.com and Margit Feher at
margit.feher@dowjones.com