Draghi warns of unstable prices, demands reforms

"The risk that we do not fulfil our mandate of price stability is higher than six months ago," Mario Draghi, president of the European Cental Bank (ECB), told German financial newspaper Handelsblatt in an interview published on Friday.

Inflation in the 19-member eurozone dropped to just 0.3 percent in November, an alarmingly low level, given the ECB's target of keeping the rate of inflation at roughly 2 percent.

Draghi told the paper that the risk of deflation was "limited." Falling prices would most likely strangle economic growth as both consumers and businesses kept deferring spending and investments in the hope of prices dropping even further.

The ECB was prepared to intervene, Draghi told Handelsblatt. "We are in technical preparations to adjust the size, speed and compositions of our measures in early 2015, should it become necessary to react to too long a period of low inflation."

The ECB has already used measures like asset purchases and making cheap loans to banks available to stabilize prices. It is also considering large-scale purchases of sovereign debt, so-called quantitative easing (QE) to boost the bloc's struggling economies.

Draghi also criticized member states, including Germany, for not doing enough to implement much needed structural reforms.

"The problem is threefold - a lack of reforms, red tape and high taxation. If we don't tackle those, growth will remain weak," he told the paper.

In the wake of Draghi's comments on the central bank's future monetary policy, the euro dropped to a four-and-a-half-year low on Friday morning, with the single currency dipping to 1.2035 against the greenback, reaching its lowest level since June 2010.

ng/hg (dpa, AFP)