WASHINGTON — The head of the European Central Bank said Saturday he won’t “even contemplate” the possibility of a Greek default on its debt repayments next month and that such an event would throw the eurozone into “uncharted waters.”
At a news conference at the International Monetary Fund-World Bank spring meetings, ECB President Mario Draghi provided his most upbeat outlook on the eurozone economy in recent memory.
Greece is due to make two payments totaling nearly 1 billion euros in May to its European creditors — the ECB, the IMF and the European Commission — and is struggling to come up with the cash. IMF Managing Director Christine Lagarde said this week a delay won’t be granted.
A default on the debt could force Greece to exit the euro — an event that would ripple through the rest of the region.
“I don’t even want to contemplate such an event,” Draghi said. “The Greek leadership has repeatedly stated they intend to honor all their obligations.”
“We’re certainly entering into uncharted waters if the crisis were to precipitate,” he added. “We all want Greece to succeed.”
On the broader eurozone, Draghi said the region’s economic prospects are the best in recent years as low oil prices and the ECB’s bond-buying stimulus spur growth.
“We are now seeing the beginnings of a recovery,” he said. “There has been an improvement in the overall environment.”
“It’s a consumption-, domestic-led recovery, which says the base for this recovery is going to be stronger than in the past,” he added.
Draghi said the ECB expects the eurozone to grow 1.5% this year, up from its previous estimate of 1%.
He largely attributed the gains to low oil and motor fuel prices that are leaving consumers more money to spend and ECB bond purchases of 1.1 trillion euros by late next year that are pushing down interest rates and pumping cash into the banking system.
He also credited debt reduction in many countries, economic reforms that are starting to liberalize labor and industry markets, and a banking system less hamstrung by bad loans. As a result, he said, the benefits of the ECB’s bond purchases “will be passed to the real economy.”
Draghi added that the bond-buying program is helping to fight recent deflation, or falling prices, that threatened to nudge the region into another recession. Although oil prices are pulling down prices, the bond purchases are lowering interest rates and the euro, making imports more expensive for eurozone consumers. Draghi said that he expects overall prices to be unchanged this year but that inflation should pick up to 1.5% in 2016.
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