Draghi shifts onus to governments

Mario Draghi has urged European leaders to do their bit to help turn around the fortunes of the euro zone.

Mario Draghi has urged European leaders to fix the region's broken banks and solve the debt crisis that is threatening the global economy.

The European Central Bank (ECB) president said he believed his institution had done everything in its power to stop the single currency bloc from breaking up and that European governments now needed to act quickly to restore confidence in the euro-zone financial system.

"It is essential that governments continue to implement the necessary steps," he said yesterday. "Economic indicators point to continued weak economic activity in the remainder of 2012, in an environment of heightened uncertainty."

Growth was expected to remain weak as banks and other companies adjusted their balance sheets and high unemployment and an uneven global recovery weighed on output, he said.

Spain and Greece on Wednesday outlined fresh plans to cut spending and raise taxes in an effort to convince international lenders and markets that they were on the right track to cut their deficits. Mr Draghi cited "significant progress" in Spain.

He spoke in a press conference after the ECB held its first policy meeting since unveiling plans last month to start a bond-buying programme aimed at helping Spain and other countries struggling to raise money in capital markets.

Investors have been pinning their hopes on Mr Draghi's so-called Outright Monetary Transaction plan.

But he gave no further clues about when the programme would start.

Spain first must formally request a rescue to trigger the scheme. Spanish two-year note yields have climbed more than half a percentage point in the weeks since Mr Draghi's plan was unveiled.

The ECB's governing council earlier yesterday opted to keep its main refinancing rate on hold at 0.75 per cent, already a record low. Any further rate cuts were not anticipated until after the new bond programme starts.

"The ECB sees the ball as now being firmly in the court of governments, while further rate cuts would only be considered if the economic situation were to deteriorate further," wrote Goldman Sachs analysts in a note to investors.

Politicians' room for manoeuvre has also been limited by stubborn levels of inflation. Annual inflation in the euro zone reached 2.7 per cent last month, the 22nd month in a row it was above the ECB's target of below 2 per cent. Mr Draghi said he expected inflation to remain above 2 per cent for the remainder of the year before falling next year.

* with agencies