LONDON (AP) — European Central Bank President Mario
Draghi is likely to face a barrage of questions Monday from lawmakers
asking what can be done to reduce the value of the euro, as new signs
emerged that the recovery for the 18-nation eurozone is faltering.
The
euro’s strength is hurting European exporters and keeping a lid on the
region’s recovery from recession, as everyone from German carmakers to
Greek yoghurt producers are finding it more difficult to sell their
wares.
At around $1.36, the euro is down from its 2014 high of
just below the $1.40 mark in May but remains well above its historic
average.
Official figures on Monday suggested the eurozone’s
recovery is flagging, with industrial production down a monthly rate of
1.1 percent in May. That took the annual rate of decline to 0.5 percent
and stoked fears that industry will fare worse in the second quarter of
the year than the first, thereby dampening growth. During the first
quarter of 2014, the eurozone grew by a paltry 0.2 percent.
"Although
the decline is likely to have been temporary, the disappointing numbers
add to evidence that economic growth in the region is slowing," said
Chris Williamson, chief economist at Markit.
With the economy
barely growing and not creating many jobs, politicians are piling
pressure on the central bank. If needed, the ECB could further loosen
its monetary policy through interest rate cuts or launch a monetary
stimulus similar to those undertaken by the U.S. Federal Reserve and the
Bank of England. Those programs involve injecting new money into the
economy by buying large amounts of bonds and other financial assets.
Few
economists think Draghi and the ECB want to go down that route, partly
because of technical problems such as how to buy assets — and which ones
— across a currency bloc comprising 18 countries. However, Draghi has
said such a program, called quantitative easing or QE, is within the
bank’s mandate and could be used if needed.
The International
Monetary Fund on Monday added to the debate, saying the ECB should
undertake a "substantial balance sheet expansion, including through
asset purchases" if inflation fails to pick up.
The IMF suggested
in its regular report on the eurozone economy that the ECB should buy
its member states’ government debt to "reduce government bond yields,
induce higher equity and corporate bond values, and ultimately raise
demand and inflation expectations across the euro area."
For now, Draghi is expected to resist the pressure.
"For
the time being, it seems likely that Draghi will stick with attempting
to talk the euro lower," said Jane Foley, senior currency strategist at
Rabobank International.
The calls on Draghi to do more may become
more acute in the coming months if growth remains anemic and inflation,
at 0.5 percent, stays below the ECB’s target of just below 2 percent.
The
ECB has not sat on the sidelines in recent months. It is currently
reviewing the finances of Europe’s largest financial groups and given
them cheap loans to help get credit to businesses. It has also reduced
its benchmark interest rate to a record low of 0.15 percent and set a
negative rate for the deposits that banks keep at the central bank in
the hope that pushes them to lend more.
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Juergen Baetz in Brussels contributed reporting.