European Central Bank chief Mario Draghi has said he expects a "gradual recovery" in the eurozone to start later this year. He also defended a controversial bond purchasing program ahead of a court hearing in Germany.
"The economic situation in the euro area remains challenging but there are a few signs of possible stabilization," Draghi told an international monetary conference in Shanghai on Monday. "Our baseline scenario continues to be one of a very gradual recovery starting in the latter part of this year."
Draghi played down the prospect of the eurozone breaking up in the wake of a debt crisis that has severely affected nations like Greece and Cyprus.
"Now the union is more resilient and stable than before," he said in a question-and-answer session. "The overall view is it's here to stay."
Draghi said the ECB would "continue to support macroeconomic performance by ensuring price stability in the euro area."
Bond purchasing concern
Draghi's comments come ahead of a court hearing later this month in Germany challenging the ECB's new government bond purchasing program. Under the program, dubbed Outright Monetary Transactions (OMT), the ECB could buy government bonds issued by debt-laden governments.
The purchases would drive down interest costs for countries in the bond market when they sell new bonds to pay off old ones. However, governments must apply for a bailout loan or credit line from the eurozone's financial rescue fund and commit to taking steps towards deficit and debt reduction.
But critics say the program could ease the pressure on governments to pass reforms and would make the independent central bank dependent on what governments decide to do.
Draghi responded to those concerns during his speech Monday, saying that governments "can either reform without OMTs and retain economic sovereignty or they can reform with OMTs but give up some of their economic sovereignty."
"Either way, they have to persevere in their reform efforts," he said. "So it is quite misleading to compare OMTs to historical episodes in which governments relied on central bank support to replace fiscal consolidation."
dr/lw (AFP, AP, Reuters)