ECB Projects a Difficult New Year in the Eurozone
The euro sunk on Friday morning following Thursday's European Central Bank meeting which Mario Draghi followed up with comments suggesting that the eurozone was far from the end of its financial crisis. The common currency dipped below $1.30 and traded at 1.2957.
The ECB decided to leave it's interest rate unchanged at 0.75 percent, as most were expecting. However, following the meeting, Draghi told reporters at a press conference that he and his colleagues had discussed the rate at length before making the decision. His statements have prompted investors and analysts to speculate that the rate will be cut at the ECB's first 2013 meeting in January.
The meeting also yielded changed predictions for inflation and growth in the eurozone. According to Bloomberg, the ECB predicted that the region's economy will shrink by 0.5 percent this year, a jump up from September's prediction. The bank's outlook for 2013 was bleak as the forecast changed from a 0.5 percent growth to a 0.3 percent contraction.
A Spanish bond auction that fell flat this week caused investors to revisit the possibility of a full sovereign bailout in the country. While there has been no movement on Spain's part to suggest that Prime Minister Mariano Rajoy will ask the ECB for aid, Draghi touched on the subject during the press conference, saying that the ECB was ready to enact it's bond buying program should any country ask for it.
However, he was careful to state that the promise to buy unlimited bonds did not mean the rescue money was guaranteed. He claimed that any country seeking aid would be subject to the ECB's own independent assessment and a set of terms and conditions to prevent another situation like the one in Greece.
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