ECB's Draghi: Eurozone Faces Serious Risks

Reuters

The euro zone economy faces serious risks and politicians must act fast, although the European Central Bank stands ready to provide further liquidity to solvent banks, ECB President Mario Draghi said on Friday.

No euro zone countries face an inflation risk, Draghi added - just days after other ECB policymakers said the central bank might be open to cutting interest rates.

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"There are serious downside risks here," he told the annual ECB Watchers conference in Frankfurt. "This risk has to do mostly with the heightened uncertainty."

Draghi said the Eurosystem of euro zone central banks would "continue to supply liquidity to solvent banks where needed."

"The ECB has the crucial role of providing liquidity to sound bank counterparties in return for adequate collateral. This 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," he added.

Keeping the onus on politicians to stop the crisis spiralling, he said: "We have reached a contingency where political choices have become predominant over monetary instruments that we can use in the near future."

His comments come after other central banks from major economies said they stood ready to take steps, including coordinated action, to stabilise markets as world economies prepare for a possible financial storm or public panic after cliffhanger elections in Greece this weekend.

Draghi added, however, that inflation expectations remained well anchored and that "there is no inflation risk in any euro area country."

Draghi said there had been a "string of negative survey data" since the May 24 cut-off period for the ECB's latest staff projections, which pointed to the economic situation stabilising.

The ECB left its main interest rate at 1 percent last week but economists increasingly expect it to cut rates in the coming months if the euro zone's economy continues to falter.

ECB policymaker Ewald Nowotny said on Friday the bank has the ability to cut interest rates if the euro zone economy continues to deteriorate and could even slash the rate that controls money market rates to zero.