ECB reiterates readiness to act if necessary

European Central Bank’s chief economist Peter Praet says if slowdown in global economy intensifies, bank remains ready to change or expand quantitative easing program

Photo by: AP
Photo by: AP

Two workers stand on a lifting platform during renovation works at the Euro sculpture in front of the old European Central Bank in Frankfurt, Germany, July 6, 2015

The European Central Bank's chief economist reiterated the bank's "readiness and decisiveness" to modify its trillion-euro bond-buying program should economic turbulence merit decisive action, according to an interview in a Swiss newspaper.

Interviewed by the Neue Zuercher Zeitung, Peter Praet defended the bank's stimulus programmes, including quantitative easing, saying they had helped avoid a damaging financial panic.

As turbulence in emerging markets intensifies, he said the ECB remains ready to modify or expand the program, now seen as buying more than one trillion euros ($1.13 trillion) in bonds to counter a potentially deflationary spiral.

"What's important is to emphasize our readiness and our decisiveness, should the need for action arise," Praet, of Belgian and German ancestry, told the newspaper.

"That's premature, at this time, but the risks in the world economy have increased significantly. We have had to correct our economic forecasts downward and we want to be ready to act, should the conditions demand it."

Earlier this month, the bank cut its growth and inflation forecasts, warning of possible further trouble from China. For the first time, ECB President Mario Draghi said explicitly the bond-buying program may be extended.

Despite risks posed by an expansive monetary policy, Praet said the ECB is convinced it acted appropriately, in part because its sees no "speculation bubbles" on the horizon.

"The risks to financial stability are currently limited," said Praet, who from 2000 to 2011 was executive director of the National Bank of Belgium.

Praet said the ECB's economic forecasts from earlier in 2015 weren't too optimistic.

"The adjustment downward in September wasn't big and was mostly related to the correction in emerging markets," he said. "The economic recovery in the eurozone is intact."

Praet contended the European Union would be far stronger and better equipped to manage crises by 2020 as countries tackle structural reforms and the continents' banks become fully integrated.

"We're seeing encouraging signs in the eurozone and especially in countries like Spain and Ireland, but also in Portugal," he said. "Italy began its reforms too late, but is now on the right path."

While the situation in Greece remains difficult, he's optimistic that the new program is a step in the right direction.