The European Central Bank is willing to “respond when necessary” to maintain stability in the Eurozone, as promised by its president, Christine Lagarde, given the difficult situation in the European banking sector.
Lagarde, however, has admitted that the real extent of the current tensions “remains to be seen”, but that they will probably lead to “tighter” conditions for granting loans.
“We closely follow market developments and are ready to respond when necessary in order to preserve price stability and financial stability in the euro zone,” Lagarde said Monday afternoon.
“The eurozone banking sector is resilient, with strong capital and liquidity positions.”
Financial markets have been hit by the failure of two mid-sized US banks, Silicon Valley Bank and Signature Bank, earlier this month.
The collapse of the shares of Credit Suisse, the second Swiss bank, after the refusal of its main shareholder, the Saudi National Bank, to grant new aid, have put Europe even more on the ropes. The fall in its value set off alarm bells of a possible domino effect and forced the Swiss authorities to intervene in an unprecedented way, pushing UBS to acquire its longtime rival, Credit Suisse, for $3.25 billion, about 3,050 million euros.
“I welcome the quick action and the decisions taken by the Swiss authorities,” Lagarde told MEPs.
“These actions have been decisive in restoring orderly market conditions and ensuring financial stability.”
Meanwhile, the European Central Bank, along with five other Western central banks, has announced coordinated action to facilitate access to dollars and ensure liquidity throughout the banking system.
However, neither the agreement negotiated in Bern nor the joint plan have succeeded in calming the growing nervousness among investors. European bank shares continued to fall on Monday, with Deutsche Bank, BNP Paribas, HSBC and Barclays affected by the turmoil.
“Switzerland does not set the standards in Europe”
In her speech before the European Parliament, Lagarde has tried to reassure policy makers, choosing her words carefully to avoid fueling nervousness.
“We are very confident that our banking sector is solid and well capitalized, has strong liquidity ratios, and that the standards that apply in Europe (…) are not the standards that have been applied by other institutions, particularly the Swiss authorities”, said Lagarde. “Switzerland does not set standards in Europe”, recalled the French banker.
Lagarde added that if the current tensions hit Europe, they would “probably” lead to a tightening of lending and borrowing conditions, a trend already seen as a result of ECB policy.
“Those financial tensions will have an impact. Which one, for how long, with what depth, obviously remains to be seen,” said the Frenchwoman.
The head of the ECB has insisted that interest rates are the “main tool” to return inflation to the annual target of 2%, a figure that the Eurozone currently far exceeds.
The latest data points to 8.5% inflation in February, with core inflation, a measure that excludes energy and food volatility prices, rising to 5.6%, an all-time high.
These figures have prompted the ECB to raise rates by 50 basis points at the beginning of the month, despite the collapse of US banks and the ensuing turmoil.
Lagarde has described the measure as a “firm decision that had to be made”, but has indicated that the institution she directs would maintain an “open mentality”. The ECB deposit rate now stands at 3%, the highest level since 2008.
Asked if the latest events would have an impact on the ECB’s monetary policy, Lagarde said it was “more proportionate” and “more sensible” for the bank to avoid a clear new commitment to raise interest rates at the next meeting of its Governing Council, as it had done on previous occasions.
“There is no compromise between price stability and financial stability,” Lagarde told MEPs.
“We don’t compromise one for the other. We approach them with different tools.”
Source: Euronews Español
