ECB takes credit for market calm, but says risks prevail

(FRANKFURT) - The European Central Bank said Friday its emergency measures have helped bring the debt crisis fires under control, but only governments can put out those fires completely.

In its regular twice-yearly Financial Stability Review, the ECB highlighted a "tangible easing of euro area financial stability strains since the summer."

And it said the announcement of its anti-crisis bazooka, the OMT bond-purchase programme, as well as decisions taken by EU leaders at their June summit "are responsible for the improvement felt in the financial markets."

Nevertheless, "key financial stability risks remain and there is no room for complacency," the report warned.

There were three main areas of risk, the ECB argued, notably if governments fail to implement the necessary structural and economic reforms; if banks' profits deteriorate as a result of the weak economic environment; and if the so-called fragmentation of financial markets persists.

The ECB's "timely" actions had been "critical... in easing financial stress that had, at times, reached extreme levels," said the ECB's deputy president Vitor Constancio, presenting the report.

The OMT or Outright Monetary Transactions programme -- whereby the ECB agrees to buy up the sovereign bonds of distressed countries under certain, very strict conditions -- "was crucial in underpinning a widespread narrowing of euro area sovereign spreads, accompanied by a more generalised calming of financial markets," Constancio said.

But he cautioned: "ECB policy action cannot address the root causes of financial market fragmentation, but it has attenuated the symptoms, creating breathing space for governments and financial institutions to tackle the fundamental causes of the crisis."

At their last summit of 2012 on Friday, EU leaders said the single currency area was past the worst of the long-running crisis as they trumpeted hard-fought deals on Greece and banks.

EU President Herman Van Rompuy said that even if the worst of the eurozone crisis had passed, "much still needs to be done. But all the hard work is beginning to pay off. A lot has been achieved over the course of a year."

But ECB number two Constancio was much more cautious and he would not want to lean out of the window too far.

"I have learned not to ... say such things. We should not defy gods. After hubris there comes nemesis," he said. "The risks are still there, the situation is still fragile."