Central Banks

Draghi makes case for a closer Europe

No hints from Draghi: Reaction

Eager currency traders in the City of London were left disappointed Wednesday, with the president of the European Central Bank (ECB) shining little light on the possibility of more monetary easing in the euro zone.

Analysts and economists were gearing up for some major moves in the single currency after expectations were raised in October when Mario Draghi more than hinted at a major policy move. Draghi's speech at the Guildhall in London Wednesday had little detail on what the ECB's next move may be.

Instead Draghi took the opportunity - at the Bank's England's open forum presentation - to speak about the integration needed in European institutions.

Alessia Pierdomenico | Bloomberg via Getty Images

"For countries that are part of the single market and that also share a single currency, as in the euro area, it is clear that a fully integrated banking and capital market and a higher degree of institutional integration to protect that market is of great importance," he said.

"Cross-border markets create a community of interest from which each member stands to benefit. But they also heighten shared exposure to the potential detriment of all. For markets to be truly free, therefore, they need governance."

Countries that share a single currency and a single market should "almost undeniable" have stronger common governance and deeper institutional integration, he said. He added that it was therefore a priority to complete a banking union, a fully-equipped single resolution mechanism and a uniform deposit insurance scheme.

At the ECB's October meeting, Draghi convincingly signposted the possibility of more quantitative easing (QE), sending the euro to a two-month low against the greenback. However, he did little to garner the same reaction on Wednesday. The euro had fallen to a session low of near 1.070 against the dollar before his speech but failed to gain any ground during his comments.

In October, Draghi spoke about the possibility of negative deposit rates and more asset purchases. It still remains unclear, however, whether the bank will extend its current 1 trillion euro ($1.1 trillion) asset purchase program beyond next September, or simply ramp it higher by increasing the monthly amount it buys.

Axel Weber, chairman of UBS AG
More easing won’t solve Europe, Japan’s problems: Weber

Axel Weber, chairman of UBS, told CNBC Tuesday that he is expecting the central bank to cut its benchmark interest rate by another 10 basis points in December, but others aren't so sure. Adam Posen, president of the Peterson Institute for International Economics, told CNBC Tuesday, that the ECB wouldn't boost its monetary stimulus before the U.S. Federal Reserve hikes its own benchmark rate.

He said the Fed had already "done part of the job" for the ECB by lowering the euro-dollar exchange rate. Central bankers are reluctant to admit that the exchange rate is a key focus but the euro has been falling against the dollar in anticipation of a rate hike in the U.S. at the end of this year.

Consequently, this has provided a fillip for the euro zone's exporters and Posen believes this might just make the ECB wait until next year before implementing major decision.