* Draghi says to assess need for more action in early 2015
* Technical preparations being stepped up
* ECB cuts 2015 growth, inflation forecasts sharply
* Fed's Fischer says bond buying can also work for Europe
(New story with Draghi news conference)
By John O'Donnell
FRANKFURT, Dec 4 (Reuters) - The European Central Bank will
judge early next year whether it needs to take more action to
revive the euro zone economy, President Mario Draghi said on
The ECB's Governing Council was unanimous in its willingness
to launch measures such as a government bond buying program
with new money if necessary, Draghi told a news conference after
the ECB kept borrowing costs at a record low.
The euro zone's central bank has set itself a goal of
expanding its balance sheet -- buying assets from banks and
others in return for cash in the hope it will be pushed into the
economy -- by up to 800 billion or even 1 trillion euros ($1.24
trillion) back to early 2012 levels.
With interest rates essentially at zero that has become the
"Early next year the Governing Council will reassess the
monetary stimulus achieved, the expansion of the balance sheet
and the outlook for price developments," Draghi said.
"Should it become necessary to further address risks of too
prolonged a period of low inflation ... this would imply
altering early next year the size, pace and composition of our
Technical preparations for such a move were being stepped
up, he said.
In the meantime, it will gauge the impact of ultra-low
interest rates, cheap loans given to banks and buying of
repackaged loans in an attempt to kick-start lending.
New forecasts by ECB staff sharply downgraded the euro
zone's growth outlook for next year to 1.0 percent from the 1.6
percent predicted in September.
Inflation is seen at just 0.7 percent in 2015, down from a
September forecast of 1.1 percent and way below the ECB's target
of close to but below 2 percent.
"The risks surrounding the economic outlook for the euro
area are on the downside," Draghi told reporters in the ECB's
new 1.3 billion euro headquarters, an imposing Frankfurt
skyscraper designed to show the strength of the currency.
Draghi said particular attention would be paid to the oil
price which has tumbled nearly 40 percent in the second half of
the year. "We won't tolerate prolonged deviations from price
stability," he said.
ECB Vice President Vitor Constancio had previously said the
bank would be better able to gauge in the first quarter of next
year whether it needs to take the ultimate policy step into
Mounting concerns about the euro zone economy were
underlined by the U.S. Federal Reserve's influential vice
chairman, Stanley Fischer, who said money-printing would help
Europe as it had the United States.
"If the ECB moves in that direction, it will have positive
effects," Fischer, who was Draghi's academic mentor at
university, told a newspaper in Italy.
Draghi faces considerable political obstacles to taking this
step, chiefly from a reluctant Germany. Last week, Sabine
Lautenschlaeger, Germany's appointee to the ECB's Executive
Board, said now was not the time for state bond buying.
But he said there was no need for unanimity within the ECB
to launch money-printing quantitative easing, or QE.
Other major central banks including the Fed, Bank of Japan
and Bank of England, have already used QE to stimulate their
Germany, the bloc's biggest economy by far and its most
influential, fears it would encourage reckless borrowing and
fuel inflation in future.
"The euro zone needs growth and jobs to ensure that it
survives," said Lena Komileva of consultancy G+ Economics.
"Germany's strong opposition ... raises questions about its
ability to act fast enough."
Euro zone inflation slowed to just 0.3 percent last month.
If prices were to start to falling, as they already have in
some countries, that could discourage consumers from shopping
while they wait for goods to get cheaper, creating a vicious
circle that pulls down the economy.
At Thursday's meeting, the ECB left its main refinancing
rate at 0.05 percent and the rate on bank overnight deposits at
-0.20 percent, which means banks pay to park funds at the
(1 US dollar = 0.8074 euro)
(Additional reporting by Paul Carrel, writing by Mike Peacock)
© 2023 Thomson/Reuters. All rights reserved.