EURO CRISIS

Draghi lauds government’s austerity and reform drive

But ECB chief cool on reviving bond purchases

European Central Bank President Mario Draghi on Wednesday praised the efforts of the Spanish government to get its finances back in shape, but was cold about the idea of reactivating purchases of sovereign debt.

“Remarkable progress has been achieved and is being achieved,” Draghi said in the European Parliament. “We have no reason to doubt the absolute commitment of the Spanish government to undertake the necessary reforms.

“From this viewpoint, I think, the whole union is close to Spain and certainly the ECB,” he added.

Draghi’s remarks are in contrast to earlier comments in which he suggested that Spanish sovereign debt had come under renewed pressure because the markets wanted more progress on the reform front.

The ECB chief let it be understood that the bank had done enough for euro-zone governments with its extraordinary injection of long-term liquidity and its Securities Market Program (SMP) under which it has bought Spanish and Italian government bonds to help calm the markets. This has bought time for governments to push ahead with reforms.

“Now the ball is entirely, squarely in the court of governments and banks,” Draghi said. “Governments and banks are giving some evidence that they are actually using this time in a productive way.”

Draghi said the Securities Market Program is “neither eternal nor infinite.” The ECB chief was speaking as Spain’s Popular Party government defended its austere draft budget for this year, which is aimed at reducing the deficit of the public administrations from 8.5 percent of GDP to 5.3 percent.

“Let no one doubt the deficit target will be achieved, because [...] the future of the euro is at stake,” Finance Minister Cristóbal Montoro said during the debate.

The Finance Ministry said Tuesday that in comparable terms the budget deficit in the first quarter narrowed to 0.83 percent of GDP from 0.93 percent a year earlier. However, when the early transfer of funds to the cash-strapped regions are included, the shortfall widened to 1.85 percent from 1.06 percent.

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