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Main focus of Friday, January 11, 2013

ECB keeps key interest rate at all-time low

Draghi presented the new euro banknotes at a press conference. (© AP/dapd)

The Governing Council of the ECB dashed hopes for a further drop in the key interest rate at its meeting on Thursday. Central Bank President Mario Draghi was cautiously optimistic in assessing the effects of the ECB's crisis policies, but warned against proclaiming the end of the crisis. Europe's eagerness to reform must not slacken now, some commentators urge. Others warn that the Central Bank's cash glut is only worsening the crisis.

La Stampa - Italy

Low base interest can't replace discipline

The decision of the ECB to continue propping up the real economy with cheap money is correct, but should not lead the nation states and EU institutions to neglect their reform efforts, the liberal daily La Stampa warns: "Thanks to the higher liquidity Europe's financial markets are recovering. The interest rates on government bonds are going down, share prices are rising and the credit crunch is not worsening. But two types of risk dampen the optimism: on the one hand the positive circle could turn into a vicious circle if the countries react to the sinking yields with a return to lax fiscal policies and break off their reforms. This would cause the risk premiums to rise once more and fear would return to the markets. On the other hand there is danger at the pan-European level: if the banking supervision reform fails and the new mechanisms of coordination and integration prove ineffectual, the European economy could once again collapse, and this time the individual member states would be less to blame than the central EU organs." (11/01/2013)

Cinco Días - Spain

Don't let up on reforms

The optimistic mood after the meeting of the ECB's Governing Council should not induce the governments to complacent inaction, the left-liberal daily Cinco Días warns: "It seems obvious that the engine has sprung back to life and the stabilisation of the financial markets will be reflected in the economies of the Eurozone. But as the president of the ECB warned: we can't afford to sit back now and relax. We are still in a minefield, surrounded by the risks posed by the commodities, prices and policies - or rather the potential lack of action - of the governments. It would be a mistake to believe that the structural reforms that the crisis has provoked in Europe have been implemented, or that the list of tasks ends with fiscal consolidation. Frankfurt expects the upswing of the Eurozone economies to begin this year. But for this to happen not only the engine of the markets but also that of the reforms must be kept running." (11/01/2013)

Corriere del Ticino - Switzerland

Cheap money escalates crisis

ECB President Mario Draghi has headed off speculation that the European Central Bank would lower its interest rate. This would have been yet another step in the wrong direction given that the flood of money is only intensifying the crisis instead of solving it, writes economist Alfonso Tuor in the liberal daily Corriere del Ticino: "There are good reasons to doubt the wisdom of the expansive monetary policy. The cash injection mainly benefits the financial system, which so far has been neither restructured nor reformed. The results are obvious. The interest rates are being pushed down to record lows to the advantage of financial speculation and to the disadvantage of the small savers and pension funds. Share prices are rising and creating new speculation bubbles. … But even if these don't materialise and the economy recovers, the enormous amount of money that would be brought into circulation would drive up the inflation rate, which would force the banks to increase the base interest rate (very belatedly) - with the result that the economy falls back into a recession." (11/01/2013)

La Tribune - France

Draghi once again strengthens the euro

At a press conference on the session of the European Central Bank's Governing Council, ECB president Mario Draghi unveiled the new five euro banknote, signed by Draghi himself. Once again the ECB has given its guarantee for the currency's stable future, the left-liberal daily La Tribune comments: "With his signature on the new 'Europa' series of banknotes, Mario Draghi has made another symbolic gesture to inspire confidence in the resilience of the euro. The fact that the president of the European Central Bank is guaranteeing in some way the value of the currency is also proof that monetary matters remain too serious to be left in the hands of politicians. A euro signed by Mario is meant to show that the currency will be more stable, and not just because of the new safety features. This bodes well for 2013 and the future of the euro." (10/01/2013)

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