Bloomberg News

ECB Gonzalez-Paramo Sees Confidence Returning in Euro Region

February 01, 2012

(Updates with comments starting in sixth paragraph. For more on Europe’s debt crisis, click on EXT4.)

Jan. 24 (Bloomberg) -- European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo said there are signs that investor confidence in the euro-area economy is returning and growth may be about to rebound.

“My impression is that, since December, the market psychology has begun to change,” Gonzalez-Paramo said at the Bloomberg Sovereign Debt Crisis Conference hosted by Bloomberg Link in New York today. “Pieces are falling into place, not just for a single country but for the euro zone as a whole.”

European services and factory output strengthened in January, led by Germany, survey data showed today. While the International Monetary Fund today cut its forecast for global economic growth and forecast a recession in the euro area, Gonzalez-Paramo said the region may escape that fate.

There are “good indications” coming “from the real economy suggesting the slowdown is just temporary,” while the ECB’s three-year loans are providing comfort to the banking system, he said. “It’s more likely than not that we will see a rebound in 2012” and “it is not even sure that we will have a recession in the end.”

Those remarks echo comments by ECB President Mario Draghi, who said this month that the euro-region economy is seeing “tentative signs of stabilization.”

Economic Resilience

Signs of resilience in the economy have given the ECB room to pause monetary-policy action and assess the impact of its measures to date, which include cutting its benchmark interest rate to a record low of 1 percent, ongoing government-bond purchases and unlimited lending to banks.

Gonzalez-Paramo said the record 489 billion-euro ($636 billion) adoption of the ECB’s first three-year loan in December bodes well for demand at the next offering in February.

“The big take-up in December took away the stigma effect; we had more than 500 institutions bidding,” he said. “So now there is no stigma, so that should promote more bidding.”

Furthermore, relaxing rules on collateral that banks can pledge in exchange for ECB funding could also aid demand, Gonzalez-Paramo said.

“Due to actions of rating agencies, good or bad, a number of banks have lost the possibility to post asset-backed securities with us,” which is why the ECB has expanded the pool of assets that financial institutions can submit, he said.

Gonzalez-Paramo dismissed speculation that almost all the funds ended up in the ECB’s overnight deposit facility, which swelled to a record 528.2 billion euros on Jan. 17.

Bridge Financing

“Just a very small amount of the funds injected ends up in the deposit facility,” he said. “This might be due to the fact that banks took bridge financing.”

The policy maker also reiterated that the central bank’s bond-purchase program is “not infinite in amounts, nor eternal,” addressing pressures from some investors and government leaders to expand the program to cap borrowing costs.

“It has not the purpose of depressing the entire yield curve or to create money,” he said. “It’s targeting excessive volatility in the market” and has “nothing to do with” quantitative easing.

Asked whether policy makers would consider cutting the benchmark rate further, Gonzalez-Paramo said that while “there is no sacred rule which tells you this is the minimum rate below which we will not go,” he stressed that “policy rates are determined by our mandate, which is to maintain price stability.”

--With assistance from Gabi Thesing, Scott Hamilton and Jennifer Ryan in London. Editors: Craig Stirling, Jones Hayden

To contact the reporters on this story: Daniel Moss in Washington at; Jeff Black in Frankfurt at

To contact the editor responsible for this story: Craig Stirling at

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