European Central Bank head Mario Draghi cautioned Thursday that the crisis in Ukraine could weigh on the fragile economic recovery in the 18-country eurozone.
Speaking after the bank kept its main interest rate on hold at the record low of 0.15 percent, Draghi said the bank will “closely monitor” the possible repercussions of “geopolitical risks” on the modest recovery across the 18 European Union countries that use the euro currency.
The possibility of an escalation in Ukraine as well as a ratcheting up in tensions between the West and Russia has cast a shadow over the eurozone’s fragile upswing.
Draghi warned that overall risks to the eurozone’s recovery “are to the downside and certainly one of these risks is geopolitical developments.”
He said that geopolitical risks are higher than they were a few months ago, and noted that “some of them — like the situation in Ukraine and Russia — will have a greater impact on the euro area than they certainly have on other parts of the world.”
At first glance, Draghi said the interconnections between the eurozone and Russian economies were rather limited in terms of trade and financial flows. And in terms of major financial institutions, there were “less than a handful of names” seriously exposed.
However it was hard to tell how much added impact would come “once sanctions on one side and counter sanctions on the other side are going to be undertaken.”