cyprus tops agenda as ecb\s \angst of the week\
Last Updated : GMT 19:04:41
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Cyprus tops agenda as ECB\'s \'Angst of the Week\'

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Arab Today, arab today Cyprus tops agenda as ECB\'s \'Angst of the Week\'

Frankfurt - AFP

Cyprus looks set to top the agenda at the European Central Bank\'s policy meeting on Thursday, or -- in ECB chief Mario Draghi\'s own words -- be the financial markets\' \"angst of the week,\" analysts said. Nevertheless, the ECB\'s governing council is not expected to announce any cuts in interest rates or any policy measures, ECB watchers predicted. Last month, Draghi joked that \"every week there is a new angst\" and ECB watchers were convinced that following the widespread confusion over the Cyprus bailout, it would fall to Draghi, once again, to calm resurgent market fears. \"No prizes for guessing the angst of the month: Cyprus,\" said Royal Bank of Scotland economist Richard Barwell. There had been much \"hysteria, hullabaloo and hyperbole\" in the markets since the Cyprus parliament rejected the tough terms of a bailout package with its international lenders, but the \"much hyped contagion (was) conspicuous by its absence,\" Barwell said. The capital controls eventually agreed for Cyprus were \"not the end of the line for Cyprus; and they are certainly not the end of the line for the euro. Freak out if you wish, but the (ECB\'s) governing council will keep calm and carry on,\" the expert said. Ernst & Young Eurozone Forecast economist Marie Diron similarly expected the consequences of the Cyprus bailout for the eurozone to be the main focus of Draghi\'s monthly post-meeting news conference. She, like all other ECB watchers, said that no actual policy changes -- such as interest rate cuts or liquidity measures -- were expected this week. Markets panicked when Eurogroup chief Jeroen Dijsselbloem appeared to suggest that the Cyprus deal might be used as a template for future eurozone bailouts. And one of Draghi\'s tasks will be to seek to dissipate such fears, analysts said. \"ECB members have recently come out with messages that are not always fully consistent,\" said UniCredit economist Marco Valli said. \"We suspect that Draghi will avoid giving a \'yes\' or \'no\' answer to this thorny question (while) the debate is still ongoing,\" Valli said. \"As a general principle, Draghi will probably remark that any future episode of bank restructuring will be carried out in such a way that eurozone financial stability is safeguarded,\" he said. Diron at Ernst & Young said she would listen out for any hints Draghi might have on how to tackle the difficulties facing small and medium-sized enterprises (SMEs) in drumming up credit. \"It still costs a lot more for the average Spanish firm to borrow from a bank than it costs its German counterpart. These differences go beyond normal and justified risk premia related to different economic environments,\" Diron said. ING Belgium economist Carsten Brzeski said that \"to kick-start lending to SMEs, the ECB would either have to provide further direct relief to the banks or buy bundled-up SME loans. Such a move, however, would be hard to sell politically as core eurozone countries could regard it has recapitalisation of peripheral banks through the back door.\" While a rate cut would do little to stimulate economic activity, \"it might be easier to sell a rate cut within the ECB\'s governing council and to the outside world than a lending bazooka for SMEs,\" Brzeski said. \"At the current juncture, the ECB is caught on a fragile tightrope walk: on the one hand, the ECB does not believe in the curative impact of a rate cut but, on the other hand, it has not yet come up with a politically-acceptable solution for the SME funding problem,\" he said. \"If the recovery fails to unfold, the ECB will have to choose at least\" one option, Brzeski concluded.

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