Weekly Market Outlook

Draghi Says ECB Is Ready to Respond to Any Brexit Turmoil

Mario Draghi said the European Central Bank has plans in place in case this week’s U.K. referendum on European Union membership sparks turmoil that threatens the outlook for the euro region.

At a hearing of lawmakers in Brussels, Draghi said policy makers “stand ready” to act if price stability is threatened and highlighted the Brexit vote as a potential risk.

“In particular, the ECB is ready for all contingencies following the U.K.’s EU referendum,” he said in his opening remarks to the European Parliament. Responding to questions, he said it’s “very difficult” to foresee the various ways that the vote could impact markets and euro-area economies, but “we’ve done all the preparations that are necessary now.”

In Washington, Federal Reserve Chair Janet Yellen included the U.K. vote as one of several potential international threats to the U.S. economy. The Fed last week cited it as a factor when it kept interest rates on hold.

“A U.K. vote to exit the European Union could have significant economic repercussions,” she said at the Senate Banking Committee on Tuesday.

With just two days to go before the referendum — which could see Britain withdraw from the world’s largest single market — central bankers are putting defenses in place to shore up market confidence and the financial system if that happens. With polls showing the result too close to call, officials stand ready to pump liquidity into banks if funding dries up and to push back against capital flight from sterling.

Warnings about the implications of Brexit have been coming thick and fast. The International Monetary Fund said last week it could cause a potential credit squeeze if liquidity markets dry up, and billionaire investor George Soros has warned of a slump in the pound. Campaigners to leave say the economy would thrive outside the bloc.

“It would be difficult to speculate about one outcome, we’re trying to be ready to cope with all possible contingencies,” Draghi said. Officials are mostly preparing to take action to stabilize markets and provide liquidity should it be needed, he said.