A continuation of the appreciation of the euro would force the European Central Bank to take action to maintain monetary accommodation, ECB Executive Board member Yves Mersch said Thursday.
Mersch, in the Albanian capital on the occasion of the opening of the central bank cooperation program in the Western Balkans, was asked how much of a threat the euro’s strength posed to the recovery.
He replied: “We have seen some positive developments, but as has been mentioned in the last introductory statement by the president [of the ECB, Mario Draghi], there are obviously also risks, and one of the risks that was explicitly mentioned in this introductory statement was related to the developments in the foreign exchange markets, which have increasingly an impact on our inflationary or price developments.”
He continued: “And it was also made very clear by [Draghi] and also several [Governing Council] colleagues that if these developments would continue, this would inevitably have to trigger a reaction by the ECB in order to maintain our accommodative monetary policy stance.”
Mersch stressed that the ECB did not react to monthly data that “could be very volatile and also subject to surprises which then could correct in the following days or weeks.”
The ECB permanently monitors the situation, he said.
During his speech previously, Mersch departed from prepared remarks to note that the recovery was fragile, but added that “the fragility is still there but is diminishing.”
Even if the degree of fragmentation and the extent of the fragility of the recovery are diminishing, “we are realistic,” he said. “We don’t want to be overly optimistic.”
Nevertheless, he said, “we are moving in the right direction.”