Reuters: Regulatory News: ECB's Constancio sees long period of slow euro zone growth

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ECB's Constancio sees long period of slow euro zone growth Jul 12th 2013, 01:30 FRANKFURT, July 12 | Thu Jul 11, 2013 9:30pm EDT FRANKFURT, July 12 (Reuters) - The euro zone is likely to see an extended period of slow economic growth and European Central Bank's policy will have to stay loose for a long time, ECB Vice-President Vitor Constancio said on Friday. Constancio, in the text of a speech to be given in Singapore, also criticised the European Commission's proposal for shutting down failing banks, saying that the planned authority should be given access to a public credit line. "Advanced economies, Europe in particular, face a long period of slow growth that will test the quality of our institutions," Constancio told the Official Monetary and Financial Institutions Forum event, according to the text. "The euro area is still facing a painful crisis of imbalances, financial fragmentation and low growth." Constancio said the ECB's step in providing forward guidance about interest rates last week - abandoning its customary insistence that it never precommits on policy - had been successful in stabilising financial markets after the U.S. Federal Reserve indicated it would slow its asset purchases. He said the ECB would not exit from crisis measures yet. "Europe is behind the U.S. in economic recovery and inflation risks, which implies that monetary policy has to stay accommodative for a longer period of time," he said, adding that forward guidance was conditional on economic data. Constancio said that while euro zone banks still faced headwinds, they were in better shape than commonly acknowledged, and their situation would improve with the planned banking union. While he for the most part welcomed the European Commission's proposal on bank resolution, Constancio said he would have preferred it having access to a public backstop. The new authority is supposed to wind down or revamp banks in trouble. It is the second pillar of a "banking union" meant to galvanise the euro zone's response to the crisis. If agreed by European Union states, the agency will be set up in 2015 and will eventually have the means to impose losses on creditors of a stricken bank, according to the blueprint. Officials foresee tapping banks to build a war chest of 55 to 70 billion euros but that is expected to take a decade, leaving the agency largely dependent on national schemes in the meantime. "I would have preferred, however, that the proposal would have considered explicitly the issue of a public backstop for the resolution fund in the form of a credit line that would have to be repaid afterwards," Constancio said. Link this Share this Digg this Email Reprints

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