ECB President Mario Draghi urged euro zone governments to come up with a strategy to revive growth in the struggling currency bloc while continuing to push for fiscal consolidation, in a press conference in Barcelona Thursday. Draghi insisted there was "absolutely no contradiction" between pursuing a growth pact and pushing ahead with Europe's already-agreed fiscal compact on budget discipline.  "I certainly agree with your question when you say we have to put growth back at the centre of the agenda, without any contradiction with the need to continue, persevere in fiscal consolidation," Draghi said.

Draghi has already helped to shift the tone of the economic policy debate in the euro zone last week when he advocated a "growth compact" without spelling out exactly what he meant. Now, forex trader attention is lingering on the President’s reluctance to discuss any interest rate moves in the near future and his assertion that focus should instead be placed upon the long game. “We need to collectively specify a path for the euro. What do we want to be like in ten years? How do we get there? What will it take?”, he said at the conference in Barcelona.

After announcing the decision if the ECB to keep its benchmark interest rate at a record low of 1 percent, the Italian chose to place emphasis on the responsibility of individual nations to implement growth policies; playing down the role that the ECB will play as a potentially easing force in the short-term. He outlined a series of crucial reforms that must take place within a nation if growth is to follow, "job creation is crucial," he says. Progress is being made in several countries, but some need to be more ambitious because it is in the euro zone's "common interest", he added.

Commenting on the ECB’s decision to keep the interest rate at a record low, Enam Ahmed, senior economist at Moody’s Analytics, spoke positively of the move: “The ECB held its key policy rate at a record low of 1 percent in May. Last month the central bank’s policy bias had turned more hawkish on inflation concerns. That was a mistake.

“Surveys suggest pricing pressures are easing, while the recession may be deeper. More government bond purchases are likely in the coming months and we cannot rule out further extraordinary liquidity support to banks. We expect interest rates to be on hold through 2013.”

In fact, the overall tone of his speech was generally upbeat in terms of the euro. A tone which came across to many traders as a little on the hawkish side; with no indication that short-term loosening would be implemented.  Paul Robinson, chief currency strategist at Barclays, said: “Mario Draghi is mildly positive for the euro, as he comes across as marginally more hawkish than some had expected, giving no indication of further short-term loosening even as he stressed now is not the time to think of an exit strategy.” Speaking about the Italian economy, Draghi commented that “remarkable progress has been made…the government just needs more encouragement. It’s really on a good course”, while Robinson, added: “Barclays continues to expect further weakening in EUR, but says this is more reliant on US prospects improving than European monetary policy expectations changing quickly."

Draghi’s focus on downside risk pulled the EUR/USD to 1.31095 after mention of further increases in commodity prices and tension concerning the level of debt within the beleaguered euro zone. “This economic outlook continues to be subject to downside risks”, he said, “relating in particular to an intensification of tensions in euro area debt markets and their potential spill-over to the euro area real economy, as well as to further increases in commodity prices.” True to form, forex news analyst Neal Kimberley, of Thomson Reuters, spoke candidly about Draghi’s performance and apparent lack of awareness (or honesty): “ I may be misreading the situation but it seems to me that while Draghi's  relative lack of dovishness on the day is helping press EUR/USD up; it's laying a trap; if the bloke cannot see the situation is again dire, or if he can’t admit it, then the market (maybe tomorrow, maybe  after the weekend) will come after the euro!”

Sarah Cox, Staff Writer