Draghi promises 'big' ABS program but says reforms key
By Gavin Jones MILAN Italy (Reuters) - European Central Bank President Mario Draghi promised on Friday that the ECB's planned asset purchase program would be "big" but stressed that only structural reforms by governments could revive the moribund euro zone economy. The ECB has committed to buy asset-backed securities (ABS)and covered bonds as well as offering more cheap loans to banks targeted at boosting lending to companies. As a result, "our balance sheet is expected to move towards the size it had at the start of 2012," Draghi told a news conference following a meeting of finance ministers in Milan. He declined to give an estimate on the size of the ABS program, saying "we know it's going to be big, but we are hesitant to give a number now". Draghi reiterated that the ECB, which last week cut its main refinancing rate to a record low of 0.05 percent, is ready to take more measures to fend off the threat of deflation in the euro zone if they are warranted. The economy of the 18-nation currency bloc stagnated in the second quarter, while inflation in August fell to a five-year year low of 0.3 percent. Draghi said the ECB believed recovery was continuing, even though it was "fragile, uneven and weak". However, with interest rates now at their "lower bound", he stressed that it was now up to governments to reform their economies to improve their ability to grow. "No matter what monetary or even fiscal stimulus can be decided, we won't see much growth coming from these measures ... if there are no serious structural reforms," the ECB chief said. He spoke after EU Economic and Monetary Affairs Commissioner Jyrki Katainen and the president of euro zone finance ministers Jeroen Dijsselbloem said ministers agreed on the need for growth friendly reforms in areas like labor and taxation policy. Draghi also warned that the euro zone's fiscal rules "should not be unraveled" and had been vital for restoring market confidence, even as countries debate the possible scope for a more flexible approach to fiscal consolidation. France said this week it would not be able to bring its budget deficit below the EU's 3 percent of GDP ceiling until 2017, missing the previous goal of 2015 which had itself been extended from 2013. (Reporting by Gavin Jones, Martin Santa, Robin Emmott; Editing by Catherine Evans)
