Ladies and gentlemen, the Vice-President and I are very pleased to
welcome you to our press conference. Let me wish you all a Happy New Year. I
would also like to take this opportunity to welcome Latvia as the eighteenth
country to adopt the euro as its currency. Accordingly, Mr Rimšēvičs, the
Governor of Latvijas Banka, became a member of the Governing Council on 1
January 2014. We will now report on the outcome of today’s meeting of the
Governing Council.
Based on our regular economic and monetary analyses, we decided to
keep the key ECB interest rates unchanged. Incoming
information and analysis have continued to confirm our previous assessment.
Underlying price pressures in the euro area are expected to remain subdued over
the medium term. In keeping with this picture, monetary and credit dynamics
remain subdued. At the same
time, inflation expectations for the euro area over the medium to long term are
firmly anchored in line with our aim of maintaining inflation rates below, but
close to, 2%. Such a constellation continues to suggest that we may
experience a prolonged period of low inflation, to be followed by a gradual
upward movement towards inflation rates below, but close to, 2% later on.
Against this background, the Governing Council strongly emphasises that it will
maintain an accommodative stance of monetary policy for as long asnow
necessary, which will assist the gradual economic recovery in the euro area.
Accordingly, we firmly reiterate our forward guidance that we continue to
expect the key ECB interest rates to remain at present or lower levels for an
extended period of time. As previously stated, this expectation is based on an
overall subdued outlook for inflation extending into the medium term, given the
broad-based weakness of the economy and subdued monetary dynamics. With regard
to money market conditions and their potential impact on our monetary policy
stance, we are monitoring developments closely and are ready to consider all
available instruments. Overall, we remain determined to maintain the high
degree of monetary accommodation and to take further decisive action if required.
Let me now explain our assessment in greater detail, starting with
the economic analysis. Real GDP in the euro area rose by 0.1%,
quarter on quarter, in the third quarter of 2013, following an increase of 0.3%
in the second quarter. While developments in industrial production data for
October point to a weak start to the fourth quarter, survey-based confidence
indicators up to December have improved further from low levels, overall
indicating a continuation of the gradual recovery in economic activity. Looking
at 2014 and 2015, output is expected to recover at a slow pace, in particular
owing to some improvement in domestic demand supported by the accommodative
monetary policy stance. Euro area economic activity should, in addition,
benefit from a gradual strengthening of demand for exports. Furthermore, the
overall improvements in financial markets seen since the summer of 2012 appear
to be working their way through to the real economy, as should the progress
made in fiscal consolidation. In addition, real incomes have benefited recently
from lower energy price inflation. At the same time, unemployment in the euro
area remains high, and the necessary balance sheet adjustments in the public
and the private sector will continue to weigh on economic activity.
The risks surrounding the economic outlook for the euro area
continue to be on the downside. Developments in global money and financial
market conditions and related uncertainties may have the potential to
negatively affect economic conditions. Other downside risks include higher
commodity prices, weaker than expected domestic demand and export growth, and
slow or insufficient implementation of structural reforms in euro area
countries.
According to Eurostat’s flash
estimate, euro area annual HICP inflation was 0.8% in December 2013, compared
with 0.9% in November. This outcome was broadly as expected and reflected lower
services price inflation. On the basis of prevailing futures prices for energy,
annual inflation rates are expected to remain at around current levels in the
coming months. Over the medium term, underlying price pressures in the euro
area are expected to remain subdued. At the same time, inflation expectations
for the euro area over the medium to long term continue to be firmly anchored
in line with our aim of maintaining inflation rates below, but close to, 2%.
The risks to the outlook for price developments continue to be
seen as broadly balanced over the medium term, with upside risks relating to
higher commodity prices and stronger than expected increases in administered
prices and indirect taxes, and downside risks stemming from weaker than
expected economic activity.
Turning to the monetary analysis, data for November
support the assessment of continued subdued underlying growth in broad money
(M3) and credit. Annual growth in M3 was broadly unchanged at 1.5% in November,
after 1.4% in October, following two consecutive declines in September and
August. Annual growth in M1 remained strong at 6.5%, reflecting a preference
for liquidity, although it was below the peak of 8.7% observed in April 2013.
As in previous months, the main factor supporting annual M3 growth was an
increase in the MFI net external asset position, which continued to reflect the
increased interest of international investors in euro area assets. The annual
rate of change of loans to the private sector remained weak. The annual growth
rate of loans to households (adjusted for loan sales and securitisation) stood
at 0.3% in November, broadly unchanged since the beginning of 2013. The annual
rate of change of loans to non-financial corporations (adjusted for loan sales
and securitisation) was -3.1% in November, following -3.0% in October. Overall,
weak loan dynamics for non-financial corporations continue to reflect their
lagged relationship with the business cycle, credit risk and the ongoing
adjustment of financial and non-financial sector balance sheets.
Since the summer of 2012 substantial progress has been made in
improving the funding situation of banks. In order to ensure an adequate
transmission of monetary policy to the financing conditions in euro area
countries, it is essential that the fragmentation of euro area credit markets
declines further and that the resilience of banks is strengthened where needed.
The forthcoming comprehensive assessment by the ECB will further support this
confidence-building process. It will enhance the quality of information
available on the condition of banks and result in the identification and
implementation of necessary corrective actions. A timely implementation of
further steps to establish a banking union will help to restore confidence in
the financial system.
To sum up, the economic
analysis indicates that we may experience a prolonged period of low inflation,
to be followed by a gradual upward movement towards inflation rates below, but
close to, 2% later on. A cross-check with the signals from the
monetary analysis confirms this picture.
As regards fiscal policies, it is important not to
unravel past efforts but to sustain fiscal consolidation over the medium term.
Fiscal strategies should be in line with the fiscal compact and should ensure a
growth-friendly composition of consolidation which combines improving the
quality and efficiency of public services with minimising distortionary effects
of taxation. When accompanied by the decisive implementation of structural
reforms, this will further support the gradual economic recovery in the
euro area and have a positive impact on public finances. Reforms in product and
labour markets and a rigorous enactment of Single Market policies warrant
particular focus to improve the outlook for economic growth and to foster job
creation in an environment of high unemployment.
We are now at your disposal for questions.
* * *
Question: Mr Draghi, I noticed that, in your
introductory statement, you have changed the language a bit to place greater
emphasis on the accommodative nature of your monetary policy stance. You
emphasise this accommodative nature, and you firmly reiterate your forward
guidance. Might this change in language signal that you consider the recent
rise in money market rates unwarranted? Or could you perhaps explain what might
have prompted that change?
My second question is on liquidity operations.
Some of your colleagues recently appear to have suggested that it might be
difficult to devise an operation that would target funds to the real economy,
and I was just wondering where the debate on that issue stands at the moment?
Draghi: Yes, you are right. We have used firmer words to indicate the
strength in our forward guidance, which basically means that we reiterate our
decisiveness to act as needed. And we believe that current market developments
are okay, but we think that there are two scenarios that would cause us to act:
one is an unwarranted tightening of the short-term money markets, and the other
one is a worsening of our medium-term outlook for inflation. That, basically,
is what this firmer language is addressing.
On your second point, developments in excess liquidity have
attracted a great deal of attention. But let me reiterate once again that it is
very, very difficult to draw conclusions on a relationship – a stable
relationship – between figures on excess liquidity and the EONIA. Let me give
you some figures here: if we look at the figures of 30 December 2013, we have
excess liquidity in the order of €274 billion and the EONIA standing at 22
basis points. If we take the figures of 6 January 2014, i.e. those recorded one
week later, we have €276 billion of excess liquidity, while the EONIA stood at
only 10 basis points. Now, one could, of course, say this is related to
technical market factors at the year-end, to a technical development, but you
would see the same outcome and come to the same conclusion, if you undertake a
somewhat broader comparison. If you look at the excess liquidity recorded on
19 December 2011, you will see excess liquidity standing at around €300
billion and the EONIA at 57 basis points. Let us then move to 15 May 2013:
excess liquidity was €303 billion, i.e. roughly the same amount as on
19 December 2011, but the EONIA was only 8 basis points. It is thus very,
very difficult to draw the conclusion that there is a stable relationship
between the two variables.
Question: But my second question was whether you
discussed an LTRO and how to structure it?
Draghi: As usual, we discussed all possible instruments that might cope
with these two broad scenarios and our discussion will continue, is taking
place as usual.
Question: If I could just press you on the last
point you made. When you talk about this readiness to act and all available
tools, can you give us a sense of what these tools are, whether these are
traditional interest rate cuts, deposit rates, the LTROs, quantitative easing.
What is in your toolkit, and what would happen if the conditions that you have
laid out were to be met and more easing was to be required? And my second
question is on banking union: how concerned are you about the adequacy of the
public backstops for the resolution of any problem banks? Or, if there are
holes in the asset quality review, and if the money is not there, is there a
risk that this maybe undermines confidence, rather than mere
confidence-building exercises?
Draghi: On the first point: we have several instruments that we can
use and our choice will depend on what actually happens. Some of these
instruments would more easily address certain developments in the short-term
money markets, while others would be better suited to address a broader
worsening of our medium-term outlook. So, I think that it is pointless at this
stage to speculate on which instrument we would use. But let me be absolutely
clear on a more general matter: we have a mandate to maintain price stability,
in both directions. Thus, all instruments that are permitted by the Treaty
would be eligible for use by the Governing Council. Let me make this point
absolutely clear.
On your second question, were you referring to the public
backstops related to the outcomes of the asset quality review, or were you
referring to the single resolution mechanism (SRM)?
Question: Yes, both.
Draghi: And what leads you to think that there are no such backstops
in place? There has been a solid commitment by leaders, which has been
confirmed by the Ecofin Council and by the Eurogroup, so that all governments
have basically committed themselves to provide these public backstops that
would be put in place according to established regulations, which means
basically that all the list of creditors will have to be bailed-in, and so on
and so forth. The rules on state aid would thus have to be complied with. So I
think there is an explicit commitment that I frankly have no reason to call
into question.
Question: President Draghi, given the ongoing
weakness in lending that you mentioned in your introductory statement, would
you say that the need to undertake the asset quality review (AQR) has delayed
the recovery in lending, because of banks seeing the need to tidy up their
balance sheets? And, if you do recognise that, then is there anything you can
do to mitigate that, or would you intend to try and mitigate that?
And my second question is about the member of
the Executive Board who will eventually take up a position as the Vice-Chair of
the Supervisory Board. You stressed in the past the need to have separation
here, so I would be interested if you could explain what role that board member
will play in Governing Council debates on monetary policy. Will that person
exercise a vote or abstain from activity on the monetary side?
Draghi: I will answer the second question first. I will quote from
the Statute of the ESCB and of the ECB. It states that “each member of the
Governing Council shall have one vote”, so this is part and parcel of the
Treaty and cannot be changed. Having said that, we will certainly make sure,
and are actually already making sure, that there are enough degrees of
separation so as to absolutely establish that the two decision sets are kept
separate. That is what we are doing, separation within the Treaty.
Regarding the weakness in lending and whether the AQR may have
increased this, one certainly might have some short-term deleveraging by the
banking system in order to be prepared for the AQR. However, one has to
counterbalance this with two other considerations. One is the long-term greater
health of the banking system – when I say long-term, I am not talking about
years, but about the end of this year, when the AQR will have been completed.
The banks are actually undertaking corrective action even before the AQR takes
place, as you yourself suggested. So, by the end of this year, we will
certainly have a stronger and more transparent banking system. Markets will be
able to better understand what is on the banks’ balance sheets. That is the
second point: one has to balance the short-term implications with the fact
that, as you can see, the capital markets have reopened for banks. And here I
would like to draw your attention to a very interesting piece of data. You know
that after the Lehman crisis, the spread between non-financial corporate
issuance and financial or banking issuance moved up substantially, and stayed
high for quite a long time. Our figures now show that this spread has
disappeared; to me, this is a very important signal of some improvement in
financial markets. I think it has fallen to zero, by and large.
Finally, let me make a general consideration. I don’t think we
want to repeat the mistake made by other countries in not repairing the banking
system when it is time to do so. We have seen that an unhealthy banking system
slows down the transmission of monetary policy and hampers credit. I am not
saying we have a fragile banking system, but it is very important to address
this concern and to avoid a credit crunch. That is why we want to do it. So, while
it is true that there may be short-term implications, you want to
counterbalance them with all these considerations. In the end, the scale is
very much on the side of taking action.
Question: The fall in core inflation to a record
low in December has prompted some calls from some analysts for more action from
the ECB straight away. Were the views of analysts shared by any members of the
Governing Council today in calling for more action immediately? And second, you
mentioned in the answer to one of the questions that all instruments allowed by
the Treaty would be eligible if necessary. Can you just confirm whether that
includes outright asset purchases or not?
Draghi: On the second question, as I said before, I would not want
to go into the specifics. I want to be absolutely clear though that we have a
mandate to ensure price stability in both directions. And the Governing Council
is ready to use all the instruments that are allowed by the Treaty.
On your first question, we were all aware that the decline in the
inflation rate in December 2013 was, first of all, expected. It was caused by a
technical adjustment affecting the seasonality of the services inflation
statistics in Germany, which basically meant that the December 2013 data came
out much lower than in November. Fortunately this was a one-off event.
Question: Mr Draghi, after three years of
crisis, bond markets in Europe seem now to be in better shape, or at least to
work more normally, especially in the south of the euro area. There is still a
lot to do, but how do you see this evolution and what do you expect for the
coming months?
Draghi: Well, there are many reasons for this, some of which we are
actually still exploring. But there is no doubt that conditions in the
financial markets have been gradually easing since July 2012. This is certainly
due to the ECB’s actions, but equally important are the actions by governments,
both in fiscal consolidation and in some countries – which are, by the way, the
ones that are now seeing the greatest benefits – in undertaking the needed
structural reforms. And third, we have to look at what has happened since then
to the general euro governance and the progress that has been made on the
banking union. I know that many commentaries always look at the glass as being
half-empty, but this is not true. If you just have some historical perspective
and look how euro area governance was one-and-a-half to two years ago and you
compare this with what it is today, there has been an extraordinary, very
significant step forward. I think these three factors explain some of the
improvements, but frankly there are also other factors that will still have to
be analysed.
Question: President Draghi, you said recently in
an interview that we must take care not to get stuck in a period of inflation
below 1%, thereby slipping into a danger zone, and in the introductory
statement you noted that inflation will be staying around current levels for
the coming months. How long can you be below 1% before you have to do
something? My second question is about money markets. You just talked about the
nexus between excess liquidity and money market rates and we are seeing that
some money market rates are now at a higher level than they were last summer
when you said they were unwarranted. Could you maybe explain a little bit
what’s driving them at the moment?
Draghi: On the first point, as I said, inflationary pressures are
going to remain subdued for quite some time. Now they are projected to stay
subdued, below the level of 2%, for at least two years. But we have to look at
it from a medium-term perspective and, so far, this is quite in line with our
baseline scenario. We will act when we have reason to think that our
medium-term assessment for inflation is changing for the worse and, as I said before,
we stand ready to act and we stand ready to use all the needed instruments that
are allowed by the Treaty. We have our mandate, we are acting within our
mandate and we have to use the instruments that are allowed by the Treaty.
On the second point, short-term money market rates depend on a
variety of factors. Our forward guidance, strengthened by the decision that we
took in November, has produced, I would say, quite a successful stabilisation
of the interest rate curves in the short term. It certainly has reduced
uncertainty about interest rates – the volatility of interest rates – and also
uncertainty about monetary policy actions. We have clarified our reaction
function, but we have to keep in mind that there are all kinds of influences on
these rates, some of which have to do with our own euro area economy and some
of which have to do with external factors. Our view is that after the forward
guidance that has been issued and strengthened by our November decision, the
factors that have to do with our own economies are now predominant. In other
words, to some extent, the euro area is fairly insulated from outside
developments and I think that’s what we are seeing now. And the overall
situation is very different from what it was in July.
Question: My question relates to the bond
markets again. This week we have seen the Irish come back to the market and the
success of the refunding exercise. So, does that back up some of the comments
that we have heard from Commission politicians, who have said that we can now
declare victory on the euro area crisis? Or, given some of the figures that we
have discussed, like the 12% unemployment rate for the euro area, the high
levels of youth unemployment, etc., is it premature for us to describe this
crisis as being over, and can we actually declare victory as some politicians
have done, politicians who are obviously trying to reach out to a broad
platform? Your views on this would be very welcome.
Draghi: I would be very cautious about saying that, very cautious
indeed. Unemployment stands at over 12%. The only positive news is that this
unacceptably high unemployment rate is stabilising. In other words, it is not
continuing to go up each and every month. However, it still stands at over 12%.
The recovery is there, but it is weak, it is modest. As I have said many times,
it is also fragile, meaning that there are several risks – from financial and
economic risks, through geopolitical risks, to political risks – that could
easily undermine this recovery. Fortunately, we can see that the recovery,
which was initially based exclusively on export growth, is now very gradually
extending into domestic demand. But it is still premature to declare victory.
As someone observed earlier, that is why we are using an even firmer language
for our forward guidance. I think that if you look at the drivers of this
recovery, on the one hand we have export growth, and we think that global
demand may continue to be what it is and, if anything, increase. On the other,
we have domestic demand, where the following factors are actually helping the
recovery to spread: The first factor is certainly our very accommodative
monetary policy stance, which is finally finding its way through the economy.
The second effect, which relates to what you said about the bond markets, is
confidence: confidence is gradually coming back. The third factor is that there
is also somewhat less of a fiscal drag than there was last year. Finally, the
very low inflation rate is, in itself, supporting real disposable income. Now,
if you examine these four factors, you see how easy it is to turn some of them
into their opposite, certainly not the monetary policy stance, because it is a
policy decision, but confidence, for example. Confidence has returned, but six
months ago we would not have said that. Even three months ago, we would not
have been that explicit. So, we want to see confidence for a relatively long
time before we can say we can declare victory. I would say that things are
slightly better: our baseline scenario is being confirmed.
Question: First, would you say today that
deflation risks are no higher than they were in November, when the ECB promptly
decided to cut rates after the very low inflation rate of October? Second, the
ECB issued a statement on SEPA migration. When we read between the lines, it
seems that the ECB is kind of upset about the possibility of delaying the end
of migration. Could you maybe elaborate on this?
Draghi: With regard to the first question, I have really kind of
answered that before. The data that came out in December 2013 were essentially
the result of a technical issue, what some people would call a quirk, in the
statistics on services inflation in Germany.
As for the second question, I am not sure what you mean by
“between the lines”: I would say that it is the Commission’s initiative and
thus the Commission’s view.
Question: First, a short question, is there any
news regarding the protocols of the Governing Council meetings? And a second
question, to come back to the SEPA migration issue. Could you elaborate a
little more on why the Eurosystem seems obviously to be sceptical about
postponing the deadline for the migration? Is it just not necessary from your
point of view or is it sort of problematic or even dangerous? Perhaps you can say
a little more about that.
Draghi: On the second question, what we were observing recently is
that finally migration was picking up and I can give you some figures. First of
all, there have been significant efforts by the majority of the stakeholders in
the euro area. For example, the November migration figures show a significant
increase in SEPA direct debits, to 26% of total transactions, more than double
the October figures, when they had increased by 11.5%, and almost four times
the September figures, when it was only 7%. So, based on the feedback we get
from the industry and from the markets, we do expect this growth rate to
continue as we speak. As for credit transfers, 64% of transactions in November
were already SEPA-compliant. And they were up from 60% in October. That is why,
in a sense, we want to see this migration completed, we think it is of benefit
for the consumers, first and foremost, and in a sense indirectly also for the
banks.
As for the minutes, we still are reflecting on it. The Executive
Board will present soon a first proposal. I kind of used the wrong word, not
“minutes”, I’d say “accounts”; you said “protocols”. We will discuss it. But as
I have said many times, in a sense it is not an easy issue. It is complicated
by the fact that the ECB wants to be – we think we are transparent already –
even more transparent, giving some richer information about our deliberations,
about our discussions. At the same time, we have to keep in mind that we are
not a one-country environment and this implies that we have to be the jealous
guardians of the independence of our Governing Council members.
Question: Jack Lew, the US Treasury Secretary,
was just in Paris, Berlin and Lisbon this week. I attended his press conference
in Paris and he said that the United States was looking for a growth agenda
that has to be rooted in investment and demand, and it was clear that some
countries have more capacity to stimulate growth and demand than others do. I
have a suspicion he was talking about Germany. Is that view shared by the ECB,
that there are countries here maybe with current account surpluses that need to
step up and stimulate demand?
Draghi: Let me make just two points on this. In a speech I gave in
Berlin about a month ago, I quoted President Abraham Lincoln. He famously said:
“You cannot make the weak stronger by making the strong weaker”. You want to
promote growth, but you are not doing it by weakening the country that is best
performing in the euro area. All the euro area members benefit from this performance.
If there are, as there are, structural investments, infrastructure investments
to be done, they ought to be carried out. Regardless, in a sense, of what is
the consequence, they ought to be carried out. So, the policy advice is really:
continue your successful performance and take care of the weaknesses in
investments where needed. I never understood very well the idea that by making
Germany weaker you would benefit other countries in the euro zone or by
undermining the fundamentals upon which this strength is based one would make
the other countries stronger.
Question: Mr President, you have given us an
account of the effectivity of the measures being taken within this crisis.
Could you please also give us an outlook and your account of where you see the
main risks in the forthcoming months that could undermine this effectivity? And
secondly, just to clarify: in the last months, you have always told us that the
ECB Governing Council currently sees no deflationary pressures. Now we see a
rather negative outlook for the coming months. Is this still the stance the ECB
Governing Council has?
Draghi: There are, as I said in the introductory statement and as
unfortunately I have been saying now for months, downside risks to the economic
recovery, and the downside risks stem from all the uncertainties – financial
and political uncertainties, commodity prices – all the uncertainties that
could undermine the main factors driving the recovery: loss of confidence, even
political crisis. So, these could all, in a sense, undermine the success of
this very modest recovery. On the inflation side, as you say, this is our
baseline scenario; we do not see deflation right now, but, if we were to have
low inflation for a very protracted period of time, it is quite clear that we
should be extremely aware of the potential downside risks. Right now we see
limited upside risks and limited downside risks for the inflation path. And let
me also add that when we define deflation as a broad-based, self-fulfilling,
self-feeding fall in prices, we do not see that in the euro area. Even when we
look at individual countries we may actually see negative inflation rates in
one or two countries, but then we should also ask how much of this is due to
the necessary rebalancing of an economy that had lost competitiveness and had
gone into a financial and budgetary crisis? And how much of it is due to actual
true deflation? So, by and large, we do not see deflation in the Japanese sense
of the 1990s.
But we asked ourselves – and perhaps I have explained this on
another occasion – are we close to the Japanese scenario? And the answer we
gave ourselves is no, we are not. For a variety of reasons. The first one of
which is the most important, i.e. that the ECB has taken decisive action at a very
early stage of this crisis. The second is that the condition of the balance
sheets of the banking sector and the corporate sector is not as bad as it was
in the 1990s there. The third reason is that we are now proceeding fast with
the asset quality review (AQR), which will lead to the repair of our banking
system. And the final reason is that if we look back at how long-term inflation
expectations were actually behaving in Japan at that time, we would find out
that they were actually not firmly anchored. That is why it is so important
that our inflation expectations remain firmly anchored, because they tell
people that in a certain amount of time, over the medium term, inflation will
go back to our objective, namely close to but below 2%.
Question: I am wondering: can the ECB ever run
out of money?
Draghi: Technically, no. We cannot run out of money. We have ample
resources for coping with all our emergencies. So, I think this is the only
answer I can give you.
Question: My first question is on inflation. You
said that the small decrease in December 2013 was broadly as expected and that
you expect annual inflation rates to remain at around current levels. Does this
also mean that you would not be surprised if annual inflation rates fell a
little bit further in the coming months as some economists expect, or would you
expect them to go up at least a little bit? So, if annual inflation rates
decrease further, does this mean that it would change your medium-term
inflation projections? Secondly, on your relationship with the Germans and the
German public or the ECB and the Germans, you said in an interview that there
was a perverse angst in Germany that things were turning bad. Do you really
think that this was helpful for increasing the understanding and support in
Germany for the ECB’s policy?
Draghi: In answer to the first question, we have a baseline
scenario, which was presented in the most recent macroeconomic projections by
ECB staff and includes the inflation figures for the next two years. We don’t
expect anything other than our baseline scenario. Otherwise, you wouldn’t call
it a baseline scenario. On the other point, let me say a couple of things.
First of all, if I can find the actual definition of perverse in English, I
would be very glad. There is a difference between perverse and perverted, and I
think there was a misunderstanding there. My second point is that there were
two issues in this interview. Let me quote: “Are you saying that the euro
crisis is over?” That was the question. The answer was: “No, but the fears felt
by some sectors of the public in Germany have not been confirmed. What haven’t
we been accused of? When we offered European banks additional liquidity two
years ago, it was said there would be a high rate of inflation. Nothing has happened.
When I made my comment in London, there was talk of a violation of the central
bank’s mandate. But we had made clear from the beginning that we are moving
within our mandate. Each time it was said, for goodness’ sake, this Italian is
ruining Germany. There was this perverse angst (not perverted angst) that
things were turning bad, but the opposite has happened: inflation is low and
uncertainty reduced”. That is what I said. So, the angst referred to inflation
angst. It’s also been commented that there is another angst which is actually
very serious and very real. We should all be concerned, not only in the euro
area, but in most developed countries, that there is the angst of people who
are preparing for their old age. The angst of people whose pension plans are
being reduced in capital value by the very low level of interest rates. That’s
a different thing and a serious problem, which the low inflation and low
interest rates carry with them. So we are also thinking about this and are very
aware of this problem. It’s a very reasonable angst and we are confident that,
as the recovery takes place and gets firmer and firmer, we will see better
rates of return on the investments of the pension plans and the insurance
plans. And I would also comment that these rates of return have little to do
with our short-term rates. So, even though the ECB is depicted as the
institution that is actually keeping rates low, we are not talking about the
same rates. The rates of the pension plans are long-term rates. We are talking
about short-term rates in our policy, so the two things are different. Now, the
definition of perverse is “persistent in error; different from what is
reasonable”. Of course, that’s one of many definitions, but it’s the one I was
referring to.
Question: Allow me to come back to the topic of
SEPA migration. You’ve given us some average figures for the euro area on the
percentage of transfers that are made in accordance with the SEPA standards now
or were made in October/November, but there are differences between countries.
How do you explain the fact that some countries are lagging behind so much,
especially Germany? Why is it that Germany in particular is coming so late to
SEPA migration?
Draghi: I don’t really want to comment on specific countries, but I
can give you the names of the leaders. They are Finland, Luxembourg, Slovenia
and Slovakia, with migration rates close to 100% for credit transfers. Finland
and Slovenia are also close to 100% for direct debits. So, if we focus on
growth rates, the migration is actually gaining momentum everywhere, even in
Germany. In a sense, it’s quite understandable that the larger and more complex
banking systems take longer to achieve what is an amazing migration to a single
European system. Certainly, what I can see now is a general significant effort
by all the stakeholders in the euro area, i.e. banks, corporates and so on.
And, as I have said, larger and more complex systems will naturally take
longer.
Question: I’d like to ask you for a few more
details about the asset quality review. I’d like to know if there is consensus
on the treatment of government bonds, just if you can give us a few more
details on this. My understanding is that they would be considered as having no
risk in the asset quality review – if you could be just a little more specific
on this. And another question regards whether you have reached agreement on any
date – a future date – for the publication of the details of the requirements
for banks in view of the asset quality review.
Draghi: On the second point, we will come out with a second batch of
information at the end of this month, in which we’ll say more about the asset
quality review, we’ll say more about the stress tests. So that is the deadline
that we’ve given ourselves.
On
the first point, I’m afraid there is a certain amount of confusion. Government
bonds are going to be treated in the review exactly like the Basel Committee is
saying. So, government bonds are, in the Basel Committee regulation
framework [1],
risk-free, and that is one thing. Now, like all assets of the banks, they will
be subject to stress tests. But they are risk-free. A different issue is what
happens to the banking regulation, how the future banking regulation will treat
government bonds. And that’s an entirely different issue which we don’t deal
with here, but the natural place to discuss these issues is the Basel Committee
– any change to the treatment of government bonds will have to be agreed at a
global level.
Question: I’ m sorry if I missed your comments
on this. Were there any board members who were in favour of a rate cut at this
meeting or was the decision to hold the rate unanimous?
Draghi: As I said before, we had an extensive discussion on the
state of the economy. We asked ourselves questions more about what sort of risk
could undermine our baseline scenario. Could this modest recovery weaken all of
a sudden? What would cause our medium-term assessment for inflation to worsen?
And when I say “worsen” at this point in time, I mean to go down. Are the risks
for inflation bigger in one direction or another? I said they’re limited on
both sides and in the introductory statement I said they’re broadly balanced.
And then we asked ourselves: what is an unwanted tightening on the short money
markets, which could then translate itself into a threat to the recovery? These
sorts of questions were discussed, and then of course we discussed all the
instruments that would be used if such scenarios were to materialise.
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