Euro is not in danger, ECB head says

22 Jul 2012, 7:21 am   -   Source: AAP
The head of the European Central Bank says the euro is 'absolutely not' in danger. (AAP)

The head of the European Central Bank says the euro is 'absolutely not' in danger. (AAP)

The head of the European Central Bank says "the euro is irrevocable".

The head of the European Central Bank says the euro is "absolutely not" in danger as the continent's financial crisis simmers, and insists the currency is "irrevocable".

Worries about the 17-country eurozone's future health have been fuelled lately by Greece's persistent troubles and by the financial woes of Spain, the bloc's fourth-biggest economy.

European ministers this week signed a rescue package worth up to 100 billion euros ($A118.51 billion) for its ailing banks, but concern flared about Spain's prolonged recession and the debts of its regions, and the country's borrowing costs rose.

Asked in an interview with French daily Le Monde whether the euro is in danger, ECB President Mario Draghi replied: "No, absolutely not."

When outside analysts draw up scenarios for an "explosion" of the eurozone, "that underestimates the political capital that our leaders have invested in this union, as well as the support of European citizens," Draghi said in the interview, which was posted on the ECB's website.

"The euro is irrevocable," he added.

The ECB this month cut its benchmark interest rate to a record-low 0.75 per cent but gave little sign of further action soon to ease the crisis.

It already has made two rounds of three-year emergency loans to banks, but has shown little appetite to reactivate its government bond-buying program.

"Our mandate is not to resolve the financial problems of countries, but to ensure price stability and to contribute to the stability of the financial system in full independence," Draghi said in the interview with Le Monde, conducted on Wednesday - emphasising the ECB's primary task of fighting inflation.

Asked whether the ECB should do more to ease the economy, Draghi replied: "We are very open. We do not have any taboos."

He said the ECB decided to cut interest rates in July because it forecast that inflation would be at its target level - close to or below 2 per cent - at the start of 2013.

"It now seems likely that it will fall sooner than expected, at the end of 2012," he said.

"Our mandate is to maintain price stability in order to prevent both higher inflation and a generalised, broadly based fall in prices. If we see such risks of deflation, we will act."

As for the eurozone economy, Draghi said that the situation "has gradually worsened, but not to the point of plunging the whole of the monetary union into recession".

"We still expect a very gradual improvement in the situation by the end of this year or the beginning of next year," he said.

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