Russia’s actions in Ukraine, which have led to credit flows from Russia and Ukraine, have had “the effect of keeping the euro strong,” ECB chief Mario Draghi said during a press conference today (8 May). In particular, the euro has gone up in value since it is seen as a safe haven by investors, especially when compared to the volatile Russian ruble and the constantly tumbling Ukrainian hryvnia. The other more obvious reasons for the strong euro – low inflation, weak demand and high unemployment – are a “matter of serious concern” for the governing board of the European Central Bank (ECB). While the ECB board has announced its decision to keep the interest rates unchanged for the time being, Draghi stressed that there is “consensus” among eurozone central bankers that “unconventional tools” may have to be employed to counter low inflation – 0.7 percent in April.
Meanwhile, the ECB has set up a special working group to “monitor the geopolitical risk” stemming from the Ukraine-Russia crisis and its negative implications for the eurozone. To that end, Draghi warned that a new round of sanctions targeting certain sectors of Russian economy, coupled with the recession in Russia and the growing instability in Ukraine, “would certainly impact the eurozone and the EU more than other parts of the world.” The ECB chief also commented on media reports that Russian businessmen are trying to transfer their capital out of the country and often into tax havens such as Cyprus, which received its bailout only last year. Draghi admitted that “We have no evidence where exactly the capital is going.” and added that “If they go to Cyprus, it means that there is renewed confidence in the Cypriot economy. The government has been acting in compliance with the program, capital controls are gradually lifted.”
