The European Central Bank (ECB) has more money on standby to lend to banks, its president Mario Draghi said Friday, as market nervousness prevailed two days ahead of Greek elections.
"The euro system will continue to supply liquidity to solvent banks where needed," Draghi told a conference in Frankfurt. He justified massive cash infusions on the grounds of "increased financial instability."
His remarks appeared to presage more lending if needed, possibly following the formula of 1 trillion euros that the ECB lent in December and February in unlimited three-year loans to eurozone banks.
"In normal times, 'adequate liquidity' may be defined as a volume of refinancing in line with the need for banks to meet the obligatory reserve requirements and the financing of other autonomous factors," he said.
"In times of increased financial instability, 'adequate liquidity' indicates a volume of central bank money that also counteracts a temporary inability of banks to refinance in the market, which could lead to systemic consequences for the banking sector as a whole."
Concern that anti-austerity parties will do well in the Greek polls, perhaps triggering the country's removal from the eurozone, has shaken markets this week.
Draghi, speaking at the ECB and its Watchers conference, also defended ECB policies as pro-growth. Though he did not mention Greece, he replied to leftist critics who charge the ECB is pushing parts of Europe into deeper recession.
"There is a long-standing agenda on growth. It is time to implement it with determination and confidence about its longer-term benefits," he said. However, he made clear the ECB preferred deregulating, rather than public spending, to stimulate growth.
He called for "the liberalization of product markets" and "removal of bureaucratic impediments," to make it easier to start up new firms.
"These efforts should be complemented by active labour market policies, targeted at the low-skilled, the elderly and young unemployed people," he said.
"This would facilitate re-entry into productive activities for those who typically face the most difficult starting position. It would also foster social cohesion despite the burden of economic adjustment facing our economies."
Draghi defended eurozone moves to tighten the outside control of the national governments' spending.
"They should improve the management of the euro area economy. And they should bring economic and monetary union closer to the hearts and minds of Europe's citizens, whose ownership of our collective project of integration has been shaken by the crisis," he said.
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