Friday, December 2, 2011

ECB unable to rescue eurozone

The President of the European Central Bank (ECB) Mario Draghi addresses the European Parliament in Brussels, on December 1, 2011

Source: Press TV

The European Central Bank (ECB) chief Mario Draghi has insisted that the bank will not act as lender of last resort to struggling eurozone countries.

Draghi told members of the European Parliament on Thursday that despite pressure to resolve euro debt crisis the bank was bound by its mandate and must “act within the treaty”, AFP reported.

"The ECB's monetary policy is constantly guided by the goal of maintaining price stability in the euro area over the medium term," Draghi said.

While some called for the ECB to do more and others wanted it to do less in stemming the sovereign debt crisis, the Frankfurt-based central bank only role is to ensure price stability and to keep inflation fewer than two percent.

Draghi added that governments, individually and collectively, must assume the role of restoring the credibility of their economies as far as the financial markets are concerned, fading the hopes of seeing the bank acting as a firewall.

France have been calling for ECB to become a lender of last resort by purchasing unlimited European bonds to protect debt-ridden eurozone members from falling victim to the bond markets.

However, The ECB itself and Germany are opposed to this, fearing that the central bank ability to print unlimited amounts of money will have catastrophic effects on inflation.

Europe plunged into financial crisis in early 2010. Insolvency now threatens heavily debt-ridden countries such as Greece, Portugal, Italy, Ireland and Spain.

There are fears that more delays in resolving the eurozone debt crisis could push not only Europe but also much of the rest of the developed world back into recession.

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