ECB's Draghi Sees Gradual Recovery, No Deflation

(RTTNews) - European Central Bank President Mario Draghi said on Friday that euro area recovery is gradually taking place and there is no threat of deflation in the region.

Speaking at the 44th World Economic Forum Annual Meeting in Davos, Switzerland, Draghi said,"The recovery is gradually taking place but the risks are to the downside."

The ECB's very accommodative monetary policy is being passed into the real economy, he said.

Growth remains weak, fragile and uneven despite booming stock markets and a shift in recovery from exports to consumption, the ECB chief noted. Unemployment has stabilized but remains very high, he added. He also sought a change in laws in many countries to tackle youth unemployment.

The central bank head reiterated that Eurozone inflation is likely to remain below 2 percent target for the next two years. While he does not foresee deflation in the currency bloc, he said risks could rise if very low inflation persists.

"We would use all the instruments that our mandate permits" to fight any deflation threat, Draghi said.

Stressing on the importance of structural reforms, Draghi asked Greece, Portugal, Spain and Italy not to relax their efforts and urged other core European economies to make progress. He also said that fiscal consolidation must be maintained and must be made pro-growth by cutting taxes and government spending, while increasing infrastructure investment.

Stating that the European banking scene is "dramatically better" than a year ago, the ECB president said the upcoming stress tests will further improve confidence in the banking system by increasing transparency.

"Shedding light on banks' balance sheets should help them raise capital," Draghi said. "And of course banks that should go, should go."

Regarding bank supervision, Draghi said the goal is to have one supervisor and one regulator for all banks in Europe. "The ECB's view is that there should be an accelerated timeline for breaking the link between banks and sovereigns," he said. The creation of a European fund, independent of national governments, to backstop banks in difficulty should achieve this, he added.