Bloomberg News

Draghi Softens Outlook as ECB Refuses to Show Hand on Greece

February 09, 2012

(See EXT4 for more on Europe’s debt crisis.)

Feb. 9 (Bloomberg) -- European Central Bank President Mario Draghi softened his assessment of the risks facing the euro region’s economy and refused to show his hand on how the ECB can contribute to a new rescue package for Greece.

“The economic outlook remains subject to high uncertainty and downside risks,” Draghi said at a press conference in Frankfurt today. Last month, he said the outlook was subject to “substantial” downside risks. Earlier, the ECB left its benchmark interest rate at a record low of 1 percent, as predicted by 55 of 57 economists in a Bloomberg News survey.

Draghi’s comments indicate officials may be less inclined to reduce rates further and came as Greek political leaders reached agreement on austerity measures required for a new rescue package needed to stave off default.

Agreement among Greek politicians may pave the way for a private sector deal to write off 70 percent of the value of Greek bonds held by private investors, or about 100 billion euros. Both are key steps toward avoiding default and ending the debt crisis.

Draghi declined to comment on whether the ECB will use its own Greek bond holdings in any swap to help alleviate the nation’s debt burden. “I cannot say anything on how our holdings of Greek bonds will be treated,” he said.

ECB Options

The ECB has canvassed options ranging from selling its Greek bonds at the discount price it paid for them to taking a loss on the Greek assets held in investment portfolios, two euro-area officials said late last week on condition of anonymity.

The euro was little changed at $1.3282 at 2:45 p.m. in Frankfurt.German bonds fell as the yield on the country’s 10- year government bond rose 5 basis points to 2.036 percent.

Draghi has been instrumental in easing the debt turmoil in his first 100 days in office, offering banks unlimited three- year loans and reversing the two rate hikes implemented by his predecessor, Jean-Claude Trichet.

Economic data this year suggest the 17-nation euro region may avoid a prolonged recession. Business confidence in Germany, Europe’s largest economy, rose to a five-month high in January and factory orders gained 1.7 percent in December.

--With assistance from Gabi Thesing in London and Jana Randow in Frankfurt. Editors:

To contact the reporters on this story: Matthew Brockett in Frankfurt at; Jeff Black in Frankfurt at

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

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