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FRANKFURT — The president of the European Central Bank issued a sober assessment of the euro zone economy Thursday, saying he was “very, very cautious” about prospects for growth and acknowledging concern about shock waves from the civil war in Syria.
FRANKFURT — The president of the European Central Bank issued a sober assessment of the euro zone economy, saying on Thursday that he was “very, very cautious” about prospects for growth and acknowledging concern about shock waves from the civil war in Syria.
“I can’t share the enthusiasm” about budding growth in the euro zone, Mario Draghi, the president of the E.C.B., said at his monthly news conference. “These shoots are still very, very green.”
“I can’t share the enthusiasm” about budding growth in the euro zone, Mario Draghi, the bank president, said at his monthly news conference. “These shoots are still very, very green.”
The E.C.B. left its benchmark interest rate unchanged at a record low of 0.5 percent Thursday, a decision that had been expected after recent economic indicators showed the euro zone economy was beginning to recover, albeit weakly. But he said the central bank had not ruled out future rate cuts.
The central bank kept its benchmark interest rate at a record low of 0.5 percent on Thursday, which had been expected after recent economic indicators showed the euro zone economy was beginning to recover, albeit weakly. But Mr. Draghi said the bank had not ruled out future rate cuts.
“We certainly are alert to the geopolitical risks that may come from the Syrian situation,” he added.
“We certainly are alert to the geopolitical risks that may come from the Syrian situation,” he added.
Mr. Draghi’s remarks were unexpectedly pessimistic and could dampen hopes by some economists and political leaders that the euro zone is finally on the mend, following a stubborn recession that has pushed unemployment to more than 25 percent in Spain and Greece.
Mr. Draghi’s remarks were unexpectedly pessimistic and could dampen the hopes of some economists and political leaders that the euro zone is finally improving, after a stubborn recession that has pushed unemployment to more than 25 percent in Spain and Greece.
The central bank also revised down slightly its forecast for euro zone growth in 2014, to 1 percent from 1.1 percent.
The central bank also revised its forecast for euro zone growth in 2014 to 1 percent from 1.1 percent.
The E.C.B. may not welcome undue optimism about the euro zone economy because it could cause market interest rates to rise and make credit even more unaffordable for the businesses and households in Southern Europe that need it most.
The bank may not welcome undue optimism about the euro zone economy because it could cause market interest rates to rise and make credit even more unaffordable for the businesses and households in Southern Europe that need it most.
“Mr. Draghi believes investors are jumping the gun on the state of the euro zone economy and is providing a reality check in an effort to talk down market rates,” Nicholas Spiro, managing director of Spiro Sovereign Strategy, said in an e-mail.
“Mr. Draghi believes investors are jumping the gun on the state of the euro zone economy and is providing a reality check in an effort to talk down market rates,” Nicholas Spiro, managing director of Spiro Sovereign Strategy, said by e-mail.
European stocks headed higher and the dollar reached a six-week high against the euro while Mr. Draghi was speaking, as investors took his words as a sign the bank would keep interest rates low.
European stocks rose and the dollar reached a six-week high against the euro while Mr. Draghi spoke, as investors took his words as a sign the bank would keep interest rates low.
On Thursday in Britain, which does not use the euro currency, the Bank of England also held interest rates at a record low, as policy makers there, too, were hesitant to celebrate tentative signs of an economic recovery.
On Thursday in Britain, which does not use the euro currency, the Bank of England also held interest rates at a record low, as policy makers there, too, were reluctant to celebrate tentative signs of an economic recovery.
Mr. Draghi indicated that the E.C.B. Governing Council, which held its monthly monetary policy meeting Thursday, had not ruled out further cuts in the benchmark interest rate. During the debate Thursday, he said, some members argued against a cut because of signs of better growth, while others noted that growth remained tentative.
Mr. Draghi indicated that the bank’s Governing Council, which held its monthly monetary policy meeting on Thursday, had not ruled out further cuts in the benchmark interest rate. During the debate on Thursday, he said, some members argued against a cut because of signs of better growth, while others noted that growth remained tentative.
Some analysts agreed that it was too soon to feel optimistic about the euro zone economy.
Some analysts agreed that it was too soon for optimism about the euro zone economy.
The E.C.B.'s outlook showed “caution that we think is warranted,” Marie Diron, an economist who advises the consulting firm Ernst & Young, wrote in an e-mail.
The European Central Bank’s outlook showed “caution that we think is warranted,” Marie Diron, an economist who advises the consulting firm Ernst & Young, wrote by e-mail.
Mr. Draghi also addressed suggestions that Greece might need further restructuring of its debt, which many analysts argue is still well beyond the country’s ability to pay.
According to official European Union data, the euro zone grew at an annualized rate of 1.2 percent in the second quarter of 2013, ending a recession that began in mid-2011.
He repeated his recent insistence that the central bank would not be willing to take any losses as the largest holder of Greek bonds in any sort of debt relief that international creditors might be planning for Greece. Replying tersely to a question on the topic, Mr. Draghi said that the E.C.B. charter prohibited it from financing governments.
But the economic recovery has been mostly confined to Germany and a few other countries like Finland and Austria, and even there, signals are mixed. German factory orders fell more than expected in July, figures released on Thursday show.
Earlier in the day, Jeroen Dijsselbloem, the head of the Eurogroup of finance ministers, told the European Parliament that Greece would need more aid next year. But he studiously avoided using terms like bailout or loans, opting instead for terms like “support” and “measures.”
Unemployment has leveled off in the euro zone as a whole, as well as in some of the most troubled countries like Spain, where the number of jobless people declined slightly in August. But unemployment rose in the second quarter in France, to 10.5 percent from 10.4 percent, according to figures released on Thursday, a further sign of an uncertain recovery.
Mr. Dijsselbloem’s testimony, which lasted nearly two hours, appeared crafted to avoid irritating voters in countries like Germany, which faces a general election this month and where there is weariness at the prospect of bailing out other euro zone countries after three years of debt crises.
Bank lending, which is usually considered a precondition for economic growth, continues to decline. Especially in countries like Italy and Spain, many companies are caught in a vicious circle where they need credit to expand but are not making enough money to qualify for loans.
According to official European Union data, the euro zone grew at an annualized rate of 1.2 percent in the second quarter of 2013, marking the end of a recession that began in mid-2011.
But the economic recovery has been mostly confined to Germany and a few other countries like Finland and Austria, and even there, signals are mixed. German factory orders fell more than expected in July, according to data released Thursday.
Unemployment has leveled off in the euro zone as a whole, as well as in some of the most troubled countries like Spain, where there was even a small decline in jobless people in August. But unemployment rose during the second quarter in France, to 10.5 percent from 10.4 percent, according to figures released Thursday, a further sign of an uncertain recovery.
Bank lending, which is usually considered a precondition for economic growth, continues to decline. Especially in countries like Italy and Spain, many companies are caught in a vicious circle where they need credit to expand their businesses but are not making enough money to qualify for loans.
“Without credit, there is not going to be any growth,” Jörg Zeuner, chief economist at KfW Banking Group, a development bank owned by the German government, said Thursday. “Without business prospects, there is not going to be a lot of credit demand.”
“Without credit, there is not going to be any growth,” Jörg Zeuner, chief economist at KfW Banking Group, a development bank owned by the German government, said Thursday. “Without business prospects, there is not going to be a lot of credit demand.”
It is unclear how much or how quickly German growth will spill over to the weaker countries, given that companies in Germany, Europe’s largest economy, have shifted much of their attention to the United States and China.
In addition, many of the underlying problems that led to the euro zone crisis remain, including undercapitalized banks burdened by portfolios of bad loans, and excess government debt that has forced cutbacks in spending.
Mr. Draghi indicated that he was optimistic that the European Parliament would soon approve legislation that designated the E.C.B. as the central bank supervisor for the euro zone, where it would be able to compel banks to confront their problems more forcefully than some national regulators had been willing to do.
Mr. Draghi said that by October the E.C.B. expected to detail plans for an assessment of banks’ financial health, a so-called asset quality review.
Referring to legislation that would allow the E.C.B. to begin hiring and assume regulatory power over banks, Mr. Draghi said, “We should have some positive news in coming days.”
