Rising interest rates. Brexit. Trade tensions. The danger that Italian banks could become victims of their government’s war of words with the European Commission.
All these risks have helped roil stock markets in recent days, Mario Draghi, the president of the European Central Bank, acknowledged on Thursday.
But none of those hazards were enough to budge Mr. Draghi or the bank’s Governing Council from their conviction that the eurozone economy is fundamentally solid.
That message — that the eurozone economy is growing less briskly, but is not on the verge of recession — was perhaps the main point of Mr. Draghi’s news conference in Frankfurt after a meeting of the bank’s Governing Council.
The council left its benchmark interest rate unchanged at zero and made no changes to its timetable for slowly withdrawing economic stimulus.
Here are the main takeaways from the news conference:
Growing more slowly, but still growing
Surveys of confidence among European business managers, including one Thursday from Germany, show that pessimism about the economy is spreading — a fact Mr. Draghi acknowledged. The latest economic indicators are “somewhat weaker than expected,” he said.
But he attributed some of the weakness to one-time factors, such as the introduction of new European Union emissions standards that proved tougher than expected for auto manufacturers to meet. Deliveries slumped because the carmakers had trouble getting regulators to approve new models for sale.
The eurozone is simply returning to normal after an exceptionally strong 2017, when the economy expanded 2.3 percent, Mr. Draghi argued. “We are talking about a weaker momentum, not a downturn,” he said.
Rome and Brussels will work it out
Earlier in his career Mr. Draghi was the director general of the Italian Treasury and he knows very well how things work in Rome. He seemed unperturbed Thursday by the conflict between the European Commission and the Italian government. In a first, officials in Brussels have rejected the populist government’s budget, saying it violates European Union rules on government spending. The Italian government has been defiant.
“I am confident that an agreement will be found,” Mr. Draghi said. He added, however, that he had no inside information about how a compromise might look. He also ruled out that he or the central bank would play a mediating role in the dispute.
And Mr. Draghi acknowledged that Italian banks could be swept up in the political turmoil because they own lots of Italian government bonds. If the value of the bonds decreases, as it has been, the banks’ capital erodes. If the banks fall short of capital they may be shunned by financial markets.
But Mr. Draghi declined to go into detail about what the central bank might do to help the banks if the situation in Italy worsens.
The central bank is not out of ammunition
Perhaps the ultimate question is whether Italy or some other economic tripwire could plunge the world into a new financial crisis. Mr. Draghi said he agreed that banks and political leaders should be on the alert. He noted, for example, that prices for riskier corporate bonds and some kinds of commercial real estate are “stretched” — another way of saying there might be a bubble.
But the risk that a bubble could pop and cause a crisis is lower because banks are not overly indebted as they were when the last financial crisis began in 2008. “The private financial sector is not overleveraged,” Mr. Draghi said.
If there is another financial conflagration, he said, the European Central Bank, which is charged with maintaining price stability among the nations using the euro, still has the means to put it out. Even though the bank on Thursday reaffirmed plans to wind down the money-printing program known as quantitative easing that has been in place since 2015, the Governing Council also reiterated its promise to keep its main interest rate at zero at least until the end of summer 2019.
“We still have tools in our toolbox,” Mr. Draghi said.