ABU DHABI: There are tentative signs that Europe’s economy is stabilizing and that money markets are coming back to life, European Central Bank President Mario Draghi said Thursday, but he also warned that the region’s sovereign debt crisis “can get worse.”
“We see a softening business cycle in Europe with significant downside risk. We also see some tentative signs ... but I have to be quite cautious here ... some tentative signs of stabilization of economic activity at low levels.
“All this is subject to downside risk, in other words it can get worse,” Draghi told a news conference after a regular meeting of Gulf Arab central bankers and eurozone central bank governors in Abu Dhabi.
Draghi said the ECB was “reasonably satisfied” with the results of an unprecedented crisis-fighting step that it took last month, the loan of nearly half a trillion euros of three-year cash to commercial banks.
In the wake of that, some interbank money trading is resuming after being frozen by banks’ fear of the crisis, while longer-term market interest rates have come down, he said.
“I think that by and large this measure has really avoided a serious funding crisis that European banks might have to face.”
A Reuters poll of economists, published Thursday, found them predicting the eurozone economy would shrink in 2012 by around 0.3 percent – instead of the 0.9 percent growth which they had predicted just three months ago.
But Draghi insisted that Europe would be in “better shape” this year than it was in 2011 because of progress in improving countries’ fiscal discipline and reforming economies to make them more efficient.
“I see both problems addressed with determination, with conviction and with realism in many countries in euro land.”
Europe is hoping that oil-rich Gulf countries will contribute money to help resolve its crisis, perhaps by adding to the resources of the International Monetary Fund, which said Wednesday that it was seeking to raise up to $500 billion in additional lending resources.
However, it was not clear whether this was discussed in detail at the meeting. Gulf central bankers did not mention the issue publicly Thursday, except for Oman’s central bank chief Hamood Sangour al-Zadjali, who told Reuters that his country would raise its very small contribution to the IMF.
A statement released after the central bankers’ meeting said they had agreed on the need for fiscal discipline and competitiveness among member states in a monetary union, and the need to make financial systems stronger through regulation.
The statement also emphasized the growing importance of Gulf Arab states and emerging markets in general in the global economy.