Growing risks of unstable prices in euro zone, warns European Central Bank chief

ECB president Mario Draghi addressing an ECB news conference on Dec 4, 2014. In an interview with a German paper, he warned that euro zone faces a growing risk of unstable prices. -- PHOTO: REUTERS
ECB president Mario Draghi addressing an ECB news conference on Dec 4, 2014. In an interview with a German paper, he warned that euro zone faces a growing risk of unstable prices. -- PHOTO: REUTERS

BERLIN (AFP) - The euro zone faces a growing risk of unstable prices, the head of the European Central Bank said in an interview published on Friday, at a time when concerns are mounting the bloc could slip into deflation.

"The risk that we do not fulfil our mandate of price stability is higher than six months ago," ECB chief Mario Draghi was quoted as saying by German financial newspaper Handelsblatt.

Euro zone inflation slipped to 0.3 per cent in November, an alarmingly low level that the ECB warned could drop even further this year due to a slump in oil prices.

The slowdown has stoked fears the single-currency bloc could even fall into deflation, a dangerous downward spiral of falling prices that can strangle economic growth and drain government coffers.

Mr Draghi said the risk of deflation was "limited" but said the European Central Bank's governing council was "unanimous" that the bank would intervene to stabilise prices if necessary.

"We are in technical preparations to adjust the size, speed and compositions of our measures in early 2015, should it become necessary to react to too long a period of low inflation," he said.

The ECB has already used several tools to push inflation in the 19 members of the euro zone back up to the 2.0 per cent annual rate it regards as healthy, including asset purchases and making cheap loans available to banks.

It is also currently examining the possibility of large-scale purchases of sovereign debt, so-called "quantitative easing" or QE, to help jump-start the European Union's moribund economy.

Mr Draghi told Handelsblatt the bloc likely faces "a long period of weakness more than a crisis", but said he was "cautiously optimistic" that the bank's measures would be enough to return all euro zone members to growth in 2015.

He also called on EU governments to accelerate reforms to reduce bureaucracy and cut red tape to make their countries more competitive.