ECB’s Draghi says risks from emerging markets have increased

Mario Draghi said talks over Britain’s place in the European Union offer a chance to show that the region’s politicians are committed to the future of the European project.

He said risks in emerging markets “have increased again amid heightened uncertainty” since December 3, when the bank chose to cut a key interest rate and extend its bond-purchase stimulus program by six months. “Citizens and markets are too often unsure about our capacity to act jointly in a spirit of common responsibility”. Tensions over issues including the relationship between euro and non-euro members need to be resolved, with an in-out referendum possible as early as June. Factories in the euro area slashed prices of goods by the most in a year in January, a purchasing managers’ survey by Markit Economics showed on Monday, underscoring the risk that weak consumer-price pressures are becoming ingrained. “We are undoubtedly at a point in time when the cohesion of Europe is being tested”.

As the challenges are both European and global, Draghi is communicating that these challenges demand a strong European response.

The central bank chief also reiterated his view that the case for monetary policy easing had increased since the ECB’s decision to boost stimulus measures in December.

Draghi said some emerging-market economies “remain vulnerable to an abrupt shift in risk sentiment” that could lead to tighter credit conditions and deal a further setback to global growth.

While the European Central Bank forecasts euro-area unemployment will average 10.5 per cent this year before dropping to 10.1 per cent in 2017, Executive Board member Benoit Coeure on Monday called on governments to step up reforms. Fiscal policies should contribute to the economic recovery while being in full compliance with the requirements of the Stability and Growth Pact.

“We should be under no illusions: if downside risks to the recovery were to materialise, this would not make it easier to respond to the refugee crisis or to counter terrorism”, he said.