Davos 2012: Draghi says credit not back to normal
The head of the European Central Bank (ECB), Mario Draghi, has said that credit in the eurozone remains "seriously impaired" in some areas.
But speaking at the World Economic Forum (WEF) in Davos, Mr Draghi said the situation had improved since the bank's intervention last year.
The ECB lent a total of 489bn euros ($643bn; £375bn) to banks last December to relieve pressure on the system.
Despite this, he said, banks were still not lending to each other sufficiently.
"We have to see a re-activation of the interbank market, that banks trust each other to the point that they lend to each other and don't have to go through the central bank," he said.
The ECB has launched a number of operations aimed at relieving pressure on the banking sector resulting from concern about governments defaulting on their debts.
Many European banks have leant heavily to eurozone governments and could face big losses.
The ECB's interventions included unlimited three year loans - the three year LTRO - and reducing the quality of assets that could be offered as collateral.
"We know for sure that we have avoided a major, major credit crunch, a major funding crisis," said Mr Draghi.
Mr Draghi said the ECB's actions alone were not enough to end the crisis in the eurozone and called on governments to agree the planned "fiscal compact" limiting eurozone budget deficits.
However he also warned that efforts to cut national deficits would cut economic growth.
"Fiscal consolidation is unavoidable, but it is also contractionary, there is no point denying this," he said.
To tackle this he urged leaders to implement structural reforms, which don't involve tax or spending, to increase economic growth and employment.
Such reforms can include lower wages or changes to pensions and infrastructure.
UK Chancellor George Osborne also called on eurozone countries to carry out reforms.
"I think the really important thing about the Monday summit is it should focus not just on the immediate issue about the fiscal compact but also on competitiveness," he said.
"That is the lasting solution not just to the eurozone crisis but also to the challenge of increasing jobs and prosperity in Britain."
US Treasury Secretary Timothy Geithner said Europe had made "some progress" in recent months, partly due to the work of the ECB and three new governments of eurozone member countries - Italy, Spain and Greece - doing some "very tough" things.
But he stressed that the key to overcoming the crisis and resisting recession was the "firewall" being erected, which consists of bailout funds pledged by eurozone members.
"Our view is the only way Europe is going to be successful in holding this together, making monetary union work over the long-run, is to for them build a more stronger, more comprehensive firewall," he said.
"That is going to require a bigger commitment of resources."
He indicated that the US and others could be willing to contribute to additional IMF funds if European nations were willing to do that. "It not as a substitute for a more effective European response," he told a Davos session.