The European Central Bank should cut its benchmark interest rate today and authorities should introduce new bank stress tests that fully take into account a sovereign default, said Angel Gurria, secretary general of the Organization for Economic Cooperation and Development.
“We believe there is space,” Gurria said in an interview with Bloomberg Television’s Francine Lacqua in Berlin. “There can be a reduction in interest rates both to signal that the authorities are vigilant and that there is concern about the robustness of the recovery.”
Cutting rates today would also “make things easier for Mario” Draghi, the Bank of Italy governor who will succeed Jean-Claude Trichet as ECB head on Nov. 1, Gurria said.
Gurria also said that European banks should be subjected to additional stress tests that “fully take into consideration the impact of sovereign debt.”
The stress tests conducted earlier this year “did not provide confidence to markets,” because they did not clearly gauge the effects of a sovereign default, he said.