European Central Bank may inject more money into weaker eurozone nations

European Central Bank chief Mario Draghi under pressure to peg back the strength of the euro to boost struggling economies. Draghi, who has come under intense pressure, said the strength of the euro had become another reason to consider extra stimulus…

 


Powered by Guardian.co.ukThis article titled “ECB may inject more money into weaker eurozone nations” was written by Phillip Inman in Washington, for theguardian.com on Saturday 12th April 2014 22.58 UTC

The European Central Bank must consider pumping funds into the eurozone economies should the euro/dollar exchange increase again, the organisaton’s chief Mario Draghi said on Saturday.

Draghi, who has come under intense pressure to combat high unemployment and a weak banking sector by injecting extra money into the financial system, said the strength of the euro had become another reason to consider an extra stimulus.

He said the board of the central bank would consider a range of measures to offset the effects of the rising currency on inflation if it increased further.

The euro has appreciated by around 10% against the dollar since last summer, which has made imports cheaper and depressed inflation. Last month official figures showed inflation fell from 0.7% to 0.5%, well below the target of 2%.

Speaking at the International Monetary Fund’s spring conference, Draghi said inflation was depressed following a fall in commodity prices, and especially fuel compared to last year. The inflationary effects of VAT rises had also come to an end. Low demand, especially in countries hit hard by the financial crisis was another reason alongside the appreciating value of the euro.

Spain, Italy, and Greece are among the many countries that have called for a stimulus to head off deflation, which would lead to falling wages and a potential downward spiral of declining inflation and recession.

The ECB board has so far rejected calls to combat low inflation with measures such as quantitative easing (QE), which involves pumping money into the bank system to increase the supply of credit. The adoption of QE is widely credited with helping reflate the US and UK economies, which have grown strongly over the last year and and are already considering withdrawing stimulus measures.

Draghi is believed to want to move more quickly and his emphasis on the negative effects of a higher currency was widely seen as a way to increase pressure on his fellow board members to adopt QE.

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