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European Central Bank warns “rich Northern European countries should boost other economies”

Published on 12/09/2019

With economic predictions worsening, ECB President Mario Draghi has called for prudent policies for countries with high public debt, such as Portugal. Draghi also recommended the opposite to countries at the higher end of the European economic spectrum.

The message has been directed at the northern European countries whose economies are stable enough to stimulate economies on the other end of the spectrum, with the goal of bettering the Eurozone as a whole.

The ECB’s projections are now less optimistic than in June and in Draghi’s eyes this calls for stimulus from states that have the budget capacity. “It is time for fiscal policy to take its place,” said Mario Draghi at a press conference following the meeting of the Governing Council on Thursday, 12th in Frankfurt.

The main point of discussion are the new ECB projections that point to higher than expected economic growth in June this year. “Regarding fiscal policies, the slightly expansionary stance of the Eurozone is giving some support to economic activity,” the ECB president explained.

Mario Draghi further clarified that “given the weakening economic outlook and the continuing prominence of risks, governments with sufficient budget space must act effectively and timely.” For countries with high public debts, such as Portugal, the ECB leader called for caution. “In countries where public debt is high, governments must adopt prudent policies that create conditions for automatic stabilizers to operate freely,” that is, in the event of an economic crisis, they must be responsive.

The ECB decided to reduce the deposit rate of central money-lending banks from -0.4% to -0.5%, trying to stimulate bank lending. In addition to this cut, the ECB decided to resume the asset purchase program through a sort of quantitative easing.

Draghi also took another proposal out from his monetary policy toolbox, putting forward staggered interest rates for banks that deposit money in Frankfurt, exempting some banks, depending on the amount.

“The Board of Governors has decided to act now rather than wait,” said Mario Draghi, who spoke of a “clear majority” among the members. “One of the reasons has to do with inflation expectations. That is why the Board of Governors has decided to act now, because the value is far from the ECB’s mandate,” said Draghi, believing that “this package is the best option.”