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ECB vice president: Slack in economy of Europe was worse than expected

ECB Vice President, Vitor Constancio, said there may be a bigger gap between the possible levels of output in the economy of Europe and its current output.

Constancio said that what is being looked at is that the local inflation factors like wage and cost developments and price decisions are not responding in a way that is expected.

In order to place a more accurate outlook of the present situation of the economy, the board had started to consider other variables to be looked at.

According to Constancio, right now there is a 9.3 percent rate of unemployment but if the EU is to take on new variables for looking at unemployment similar to the U.S. the percentage would be around 18 percent meaning that the gap may be larger than they could have determined in the past.

He added that if that was the case it would justify what ECB President, Mario Draghi Said on his speech on Tuesday about being persistent.

“If we want to bring inflation to our target of below but close to 2 (percent) then we have to persist in the type of monetary policy that we been adopting.”

Moving on to the issue of Monday’s questionable utilization of state aid in order to save two Italian banks, Constancio said that it did not give the two banks any special treatment which would defy currently existing rules in the European Union.

ECB’s vice president disputed that the case was well within the rules of the EU on state aid and bank resolutions.

Vito Constancio projected the final resolution looked like a ‘precautionary recapitalization’ condition in which it is okay to utilize state aid, in accordance to the supervision laws of the ECB ‘when this is necessary to remedy a serious disturbance in the economy of a Member State and preserve financial stability.’

Constancio argued that it is not a special privilege for there has little changes from a case of precautionary recap which is foreseen in the law.

“At the same time, as a result of state aid rules and logic and policy, the overall capacity of the banking sector in Italy went down so there was downsizing, there was restructuring. So indeed everything was applied according to the European legislation,” the vice president of the European Central Bank added.

Constancio disproved the notion that investors should be ready for more related developments in the banks of Italy saying that he did not expect anything like that.

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