European Central Bank chief Mario Draghi felt it necessary yesterday to depart from the script at a ceremony awarding an honorary degree to reiterate his message from last Thursday – that the ECB could cut interest rates again and was looking at pushing the deposit rate which it charges banks for holding their funds overnight into negative territory in an attempt to get them to lend again.
Nothing new in the message obviously but the fact he felt the need to repeat it at a forum at which nobody would expect him to could be telling. Draghi has form here. It was at a pre-Olympics conference in London last July that he delivered his “whatever it takes” to save the euro pledge that fundamentally shifted the terms of the currency bloc’s debt crisis.
That the recession-plagued euro zone economy could do with a shot in the arm is beyond question though Draghi insisted countries must not let up on their debt-cutting. Very different tone from the prime ministers of Italy and Spain who demanded action to cut unemployment though Italy’s Enrico Letta said growth could be boosted without increasing debt.
Top event today is a meeting of the finance ministers and central bank chiefs of Germany and France in Berlin with the two countries at odds over a number of euro zone themes. The old saw is that when the Franco-German motor breaks down, Europe breaks down. Now, Germany is obviously so much more powerful that may no longer hold true, but Berlin is near the top of the list of capitals wanting a strong French voice in the EU, particularly if they can agree.
As well as differing on the pace of austerity versus the need to restore growth, the two leading EU nations are at odds over plans for a bloc-wide banking union – an attempt to prevent future financial crises. As Draghi said last week, this crisis won’t be over until a banking union is established and it should be done as a matter of urgency. Germany, saying it might require treaty change, is not listening and has clearly gone cool on the idea given the potential liabilities it could be left with. This is supposed to be sorted at an EU summit in June. They are a very long way off. None of that is spooking the markets, however, which continue to push euro zone borrowing costs down.