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European Central Bank flags fiscal issues, trade wars, Brexit risks

The decision to extend forward guidance, namely to leave interest rates unchanged by the end of June next year, was attributed by European Central Bank President Mario Draghi to prolonged uncertainty including the Brexit process.

Speaking on Thursday after policymakers opted for a dovish move at their meeting in Vilnius, he estimated there is no danger of deflation in the Eurozone, while acknowledging that financing conditions have tightened somewhat with a drop in stocks and the euro’s appreciation.

“The mildly expansionary euro area fiscal stance supports economic activity. However, countries where government debt is high need to continue rebuilding fiscal buffers. All countries should achieve a more growth-friendly composition of public finances,” he said, apparently referring to Italy. He said the so-called mini-BOTs, a hypothetical issuance of debt of small denominations by the government in Rome, would be illegal.

The chief rate-setter acknowledged market movements indicate fears that protectionism is “questioning the multilateral order.”

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