ECB president Mario Draghi thinks Ukraine collapse threatens eurozone

The economic and political collapse of Ukraine poses a significant threat to the financial state of the eurozone, says European Central Bank (ECB) president Mario Draghi. He argued that the European sanctions applied on Russia and how it will retaliate still remains unclear to the region.

The European Union inflicted touch sanctions against the Russian sectors of banking, defense and energy, citing the country’s support of the armed separatist movement transpiring in Kiev. So far, Russia has responded by prohibiting the importations of fruits and vegetables from the EU, Canada, the United States and Australia.

Russian Prime Minister Dmitry Medvedev has also hinted at wider implications.

“Our risks to the recovery were on the downside to begin with, and certainly one of these risks would be the geopolitical developments,” Draghi told reporters Thursday after announcing that the ECB will leave interest rates at record lows.

Draghi presented the case that the connections between EU markets and Russia are rather limited as only a few of the major European financial institutions had relationships with Moscow. This means that the harm could be greatly curbed.

“However, it’s very hard to assess what the actual impact is going to be once sanctions on one side and counter-sanctions on the other side are going to be undertaken,” added Draghi.

The ECB kept its main interest rate at 0.15 percent and a separate rate of -0.1 percent on bank deposits at the ECB. The financial community was surprised because of weak inflation data and modest economic growth in some of the biggest EU states. He recommended that countries need to follow in the footsteps of Spain in terms of passing economic reform laws and lowering the high tax rates.

“It is pretty clear that countries that have undertaken a convincing program of structural reforms are performing much better than countries that haven’t done so, or done so to a limited extent,” he said. “These countries have the highest taxation in the highest taxation part of the world.”

If inflation projections turn out to be vastly incorrect then the ECB may impose unconventional economic measures, but it could prove to be a difficult endeavor considering there are 18 different bond markets that would make it hard to develop a program for the countries that need it.