Introductory statement to the press conference (with Q&A)

Mario Draghi, President of the ECB,
Vítor Constâncio, Vice-President of the ECB,
Frankfurt am Main, 5 July 2012

Jump to the transcript of the questions and answers

Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the Commission Vice-President, Mr Rehn.

Based on our regular economic and monetary analyses, we decided to cut the key ECB interest rates by 25 basis points. Inflationary pressure over the policy-relevant horizon has been dampened further as some of the previously identified downside risks to the euro area growth outlook have materialised. Consistent with this picture, the underlying pace of monetary expansion remains subdued. Inflation expectations for the euro area economy continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. At the same time, economic growth in the euro area continues to remain weak, with heightened uncertainty weighing on confidence and sentiment.

We have implemented both standard and non-standard monetary policy measures. This combination of measures has supported the transmission of our monetary policy. All our non-standard monetary policy measures are temporary in nature and we maintain our full capacity to ensure medium-term price stability by acting in a firm and timely manner. Let me also remind you of the decision taken by the Governing Council on 22 June 2012 concerning further measures to increase collateral availability for counterparties.

Let me now explain our assessment in greater detail, starting with the economic analysis. On a quarterly basis, euro area real GDP growth was flat in the first quarter of 2012, following a decline of 0.3% in the previous quarter. Indicators for the second quarter of 2012 point to a renewed weakening of economic growth and heightened uncertainty. Looking beyond the short term we expect the euro area economy to recover gradually, although with momentum dampened by a number of factors. In particular, tensions in some euro area sovereign debt markets and their impact on credit conditions, the process of balance sheet adjustment in the financial and non-financial sectors and high unemployment are expected to weigh on the underlying growth momentum.

The risks surrounding the economic outlook for the euro area continue to be on the downside. They relate, in particular, to a renewed increase in the tensions in several euro area financial markets and their potential spillover to the euro area real economy. Downside risks also relate to possibly renewed increases in energy prices over the medium term.

Euro area annual HICP inflation was 2.4% in June 2012, according to Eurostat’s flash estimate, unchanged from the previous month. On the basis of current futures prices for oil, inflation rates should decline further in the course of 2012 and be again below 2% in 2013. Over the policy‑relevant horizon, in an environment of modest growth in the euro area and well‑anchored long-term inflation expectations, underlying price pressures should remain moderate.

Taking into account today’s decisions, risks to the outlook for price developments continue to be broadly balanced over the medium term. The main downside risks relate to the impact of weaker than expected growth in the euro area. Upside risks pertain to further increases in indirect taxes, owing to the need for fiscal consolidation, and higher than expected energy prices over the medium term.

Turning to the monetary analysis, the underlying pace of monetary expansion has remained subdued, with short-term developments displaying some volatility. The increase in the annual growth rate of M3 to 2.9% in May, up from 2.5% in April and close to the 3.0% observed in March, mainly reflected a reversal of the outflows in April from overnight deposits belonging to non-monetary financial intermediaries (particularly investment funds). In addition to an increased preference for deposits with shorter maturities, these factors have also shaped M1 developments, with the annual growth rate increasing from 1.8% in April to 3.3% in May.

The annual growth rate of loans to the private sector (adjusted for loan sales and securitisation) declined to 0.4% in May (from 0.8% in April). Annual growth rates for loans to both non‑financial corporations and households (adjusted for loan sales and securitisation) also decreased in May, to 0.2% and 1.3% respectively, with negative monthly loan flows to non-financial corporations. To a large extent, subdued loan growth reflects the current cyclical situation, heightened risk aversion, and the ongoing adjustment in the balance sheets of households and enterprises which weigh on credit demand.

Looking ahead, it is essential for banks to continue to strengthen their resilience where it is needed. The soundness of banks’ balance sheets will be a key factor in facilitating both an appropriate provision of credit to the economy and the normalisation of all funding channels.

To sum up, taking into account today’s decisions, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.

Let me now make a few remarks relating to other policies. We welcome the European Council conclusions of 29 June 2012 to take action to address financial market tensions, restore confidence and revive growth. We agree that Economic and Monetary Union needs to be put on a more solid basis for the future and that sustainable growth, sound public finances and structural reforms to boost competitiveness remain key economic priorities. We welcome the decision to develop a specific and time-bound road map for the achievement of a genuine Economic and Monetary Union. We also welcome the euro area summit initiative towards a single supervisory mechanism, the possibility – with appropriate conditionality – to recapitalise banks directly, and the use of existing EFSF/ESM instruments in a flexible and efficient manner in order to stabilise markets. Finally, the ECB is ready to serve as an agent to the EFSF/ESM in conducting market operations.

We are now at your disposal for questions.

* * *

Question: Mr Draghi, two questions, first of all about the deposit rate: you cut the deposit rate to zero. How exasperated are you with the fact that banks still do not use the money you are pumping into the market sufficiently either to lend it to each other or indeed to lend it to the economy, because clearly in some countries we are still in kind of credit crunch territory?

And secondly, in terms of other non-standard measures, there is lots of speculation in the market that we might see further LTROs – I know, I know, you are not going to tell us anything about that – but how temporary is temporary in terms of some of the measures that we have seen?

Draghi: I am sorry, I cannot answer the second question because we have always said that our non-standard measures are temporary and we do not want to pre-commit with regard to future decisions.

On the first question, we have dealt with this now several times. The answer is we need time to see this. The size and the complexity of these two LTROs are such that we cannot expect to see immediate action, and especially as far as the transmission of the LTROs into higher credit flows goes. But certainly now a few months have passed and we see that credit flows are actually weak and remain weak. Several observations: one is that, as I have said many times, there are at least three sets of reasons why banks may not lend. One is risk aversion, another is a lack of capital, and the third is a lack of funding. We have removed only the third, not the other two. The second reason is that this lack of transmission between the LTROs and a further enhancement of credit flows is not the same in all countries. You have countries like France, where credit flows actually continue to be moderately sustained, and you have other countries where credit flows are actually decreasing, which leads us to think that the transmission mechanism is also linked to national factors. They have to do with the way banks lend, special contracts, the contractual arrangements of different countries. But there is a third consideration, and that is that credit is now led predominantly by demand, and if demand is weak, you would not expect strong credit growth.

Question: Mr Draghi, last month you told us that price signals were not particularly effective in the current environment. Can you tell us a bit about what has changed and about the debate in the Governing Council about this?

And my second question is: China also cut rates today and we had further stimulus from the Bank of England. We were just kind of wondering about, you know, how much coordination was involved. Was there any sort of contact between you and the People’s Bank of China and the Bank of England?

Draghi: On the first question: in a highly fragmented economy, as the euro area is, certainly price changes have a more limited effect than selective quantity changes. However, in this case, the lowering of the short-term rate and the contemporaneous lowering of the rate on the deposit facility has several effects. One is the immediate effect on the pricing of the €1 trillion already allotted in LTROs. The second one is a lowering in the pricing of emergency liquidity assistance. The third effect has more to do with the expectations generated by having brought the rate on the deposit facility to zero. Expectations of a further easing of monetary policy in the event that price stability considerations were to warrant it by themselves have a positive effect, a stimulus effect. But there is a fourth reason, and that is that when we were discussing it a month ago, we could not say that we had the same picture for the whole of the euro area as we do today. We now see a weakening of growth essentially in the whole of the euro area, including countries that were not experiencing that before. So, in a sense, we can now say that this measure is addressed to the whole of the euro area, it is not addressed to specific countries. These are the main reasons, and the reason why this price signal has a more powerful effect than was previously deemed to be the case is obviously that it has been accompanied by a reduction in the rate on the deposit facility.

On your question on coordination: no, there was not any coordination that went beyond the normal exchange of views on the state of the business cycle, on the state of the economy and on the state of global demand.

Question: In June when the last staff economic forecasts were released there was a caveat that some of the more recent data which reflected lower growth and possibly inflation was not included in that. I am wondering whether those staff economic forecasts have been updated, at least internally, to reflect that lower growth and possible inflation path, and in particular whether the HICP inflation for next year, which was at a mid-point of 1.6%, was also possibly reduced and if that for you signals a possible deflationary risk already emerging?

Draghi: What we said is basically that downside risks are materialising for the economic outlook, and that this would dampen price behaviour in the short and medium term. We now see that the objective of having an inflation rate for the whole euro area that is close to but below 2% will be met in 2013, or perhaps even before then, but do not ask me the exact date, day and time when this will happen. So right now we are pretty safe in saying what I said in the introductory statement, namely that on the basis of current and future oil prices, inflation rates should decline further in the course of 2012 and return to below 2% in 2013. Now, let’s define deflation. Deflation is a protracted and generalised drop in the price level, so protracted and so strong and so generalised that it could disanchor inflationary expectations. It has to be generalised across countries and across products and sectors. And we see no sign of this in any country. But something to keep in mind for the future is that we always have to be careful in distinguishing movements in the price level and the inflation rate from movements in relative price adjustments. We can see some prices falling, but that is actually part of a good rebalancing of the situation within the euro area.

Question: You quite rightly pointed out that we have got a divergence in the euro zone in terms of bank lending. Is there anything you can do to prevent the credit crunch that seems to be emerging in places like Italy and Spain?

And the second question is also on the EFSF and the ESM fund. We know that if it does come to a situation where Spain does need extra aid, it will probably cover it, but what will happen if Italy also needs aid?

Draghi: What happens if everybody needs it? It is a big question.

On the first question, generally speaking, the idea that the ECB could channel funds via the bank lending channel to a specific category of firms or households is as wrong as the idea that the ECB should make sure banks don’t buy government bonds as otherwise it is monetary financing. “Wrong” is probably too strong, but certainly both ideas are very, very hard to implement, requiring us to make sure that the banks do certain things or don’t do certain things. We have to remember that their decisions are basically business decisions. What we could do and what we have done with respect to this is broaden the eligibility rules of collateral so as to attract the greatest number of banks, including those banks of a small/medium size which we believe are closest to the SMEs. But we have also done another thing, recently, at the last Governing Council meeting. We broadened the collateral eligibility so that banks can actually use the assets they create in lending to the real economy as collateral in borrowing from the ECB. So they are not only using government bonds, they are now also using credit claims and asset-backed securities of a lower rating, which means that for the banks in a sense it is now very useful to lend to the real economy because that way they also generate collateral that they can use for funding themselves. And we want to do this to keep the risk for the ECB balance sheet – and I have said this many times – very, very low.

As regards your second question, I do not have an answer on the ESM.

Question: We’ve just had a question about EU banking supervision. First, do you see a pan-European banking union as a system only for the largest systemically important financial institutions or for all banks?

And second, would the ECB do the supervising itself or would it outsource it to a separate body?

Draghi: I would say that it is far too early to respond to these questions, as the European Council meeting only took place a few days ago. However, let me give you a few messages of a general, albeit very important, nature.

First, with its decision to introduce a unified supervision of banks in the euro area, the European Council has made a very important step towards creating a “financial markets union” rather than a banking union. Furthermore, the leaders have committed substantial political capital to this decision. We expect that the proposal of the European Commission – after all, it is the competence of the Commission – in consultation with the European Parliament and the ECB, will be as strong as the commitment that the leaders have made in taking this decision. And we are confident that this will be the case.

Second, whatever the proposal may be, it should be such that the ECB can carry out any tasks assigned to it in an effective, rigorous and independent way, without risk to its reputation.

Third, any new tasks in terms of supervision should be strictly separate from monetary policy tasks. There should be no contamination between the two areas and we will certainly find ways to make it sure that this is the case.

Fourth, the ECB should remain independent in carrying out these tasks.

Fifth, it is essential that we work together with the national supervisors. I myself was a supervisor for six years when I was Governor of the Banca d’Italia, where supervision is one of the bank’s areas of competence. Therefore, I know only too well that the knowledge, the skills, the competence, the history and the traditions are at the national level, and we plan to make full use of this fortunate situation.

Finally, there is an issue that is, in a sense, broader: new tasks will entail a higher level of democratic accountability. The Governing Council started to discuss this today, and we basically all agree on all the principles that I have just mentioned, especially the last one. We stand ready to meet higher standards of democratic accountability, as they will be asked of us by the citizens of Europe and especially those of the euro area.

Question: I would like to go back to the question on the ESM. You mentioned before that you welcomed the fact that it was more flexible and efficient: do you think it is big enough for the tasks that it is being asked to do, from recapitalising banks to buying bonds in the secondary market?

And in relation to this, there has been an idea out there for a couple of years that the ECB could maybe play a role in increasing the firepower of the ESM, by giving it a bank licence, for example. Would you be open to this or would you rule it out as one of the legal tricks circumventing the spirit of the Treaty that you have warned about in the past?

Draghi: How big is big enough? We know what we have and so we have to make it do! And frankly, I think that, right now, the ESM and the EFSF with the new modalities are big enough to cope with the contingencies that we can envisage now.

With regard to the ECB, I have said on numerous occasions that we are certainly supporting the euro area economy by achieving our objective of price stability in the medium term, and we want to act within the limits of our mandate. I don’t think there is anything to gain by asking the institution to act outside the limits of its mandate, thereby destroying its credibility.

Question: Two questions in relation to the outcome of the euro zone summit last week. There was a specific reference to the rescue of Ireland’s banks in the euro zone communiqué. I wonder what in your opinion is the significance of that reference?

And when it says that there will be an examination of the situation in Ireland’s banks, what in your view would be the optimal outcome of that examination?

Draghi: Ireland is a euro area country that, through extraordinary efforts, has run a programme which is on track – so much so that Ireland returned to the markets today, if I am not mistaken. This is much earlier than anybody could have expected until two or three months ago. Even though this might not yet be part of a regular extended programme for a long period of time, I think that this success should be properly celebrated, and it is a testament to the determination of the Irish government and the capacity of the Irish people to understand and “own” this programme and make the needed sacrifices. I think this is very important. Actually, it is so important that an event like this could be one of the factors that are making the financial environment nowadays a little less tense than it was a month ago. I think this ought to be taken into account.

Question: You said that you can only act within the limits of your mandate. Is there scope to change the mandate?

Secondly, you have mentioned democratic accountability as one of the principles for this new financial markets union. Could you give some examples? Would you see extra scrutiny powers for the European Parliament? What exactly do you mean by “more democratic accountability”?

Draghi: On your first point, the mandate is the pursuit of price stability in the medium term with well-anchored inflation expectations. That is the mandate and we will use any tool within that mandate.

On the second point, I said that we stand ready and we are very aware that this is an essential requirement that is concomitant with more powers – even more so given that ours is a non-elected institution. We are waiting for the European Commission, the Eurogroup, the European Parliament, and the citizens of the euro area countries to tell us how we can comply with their certain desire for us to be democratically accountable with standards even higher than in the past.

Question: One question on the monetary policy decision. Was the decision unanimous or were there people arguing either for keeping rates at 1.0% or for lowering them further to 0.5%? And was there discussion about the further loosening of the collateral framework – such as exempting government bonds from any rating requirements?

On the banking union, you avoided the question of which banks should be subject to the banking supervision. I think that is a very crucial question. There seems to be a disagreement within the Governing Council: Mr Noyer argued for all banks, whereas Mr Nowotny said just a few – the systemic banks. What is your view? Does it make sense to have a supervisor who is only responsible for a few banks, where banks like Bankia, or others who may not be in the league of the systemic banks, may not be subject to that?

Draghi: The decision was unanimous on all grounds. This in itself I think demonstrates the strength of this decision.

On the second question, we are just at the beginning. We have been discussing this new concept for only two days. With a new concept – how to build this supervisory mechanism in the euro area countries – it is natural that people discuss different views. But there are no really diverging views within the Governing Council.

Regarding the principles I spoke of before, the Governing Council is absolutely united. There is no disagreement at all. Of course, it is natural for us to ask if it will apply to only the globally systemically important financial institutions or to all systemically important financial institutions – we are well aware that there are domestic banks that are systemically important. Or, to minimise distortionary situations in the competition among banks, should we extend it to all banks? These are natural questions. There are pros and cons for each one of these options, and we are now working all together on trying to find the right perimeter for this. But we should not forget that ultimately any proposal will come from the Commission, with the consultation of the ECB and the European Parliament.

Question: Mr. Draghi, I have only one question. On the same day three central banks cut their interest rates. So some experts said the current situation is even worse than when the crisis began in 2007 and 2008. My question is: what do you think about this?

Draghi: Definitely not. Well, more serious than 2007/2008 I would pick 2009 as the trough of the recession and I think we are not there at all. We have a situation for the euro area where growth is basically hovering around zero. We still expect a gradual, slow recovery around the end of the year. And so, in a sense, the baseline scenario of the ECB has not changed, although the downside risks to that baseline scenario are now materialising. Now I should stop you because I know what your next question will be: where does this recovery come from? You have asked your question, so you are not going to ask this one, but I am sure that one of your colleagues will certainly do so! The answer is basically that we should not forget that nominal rates are very, very low; real rates are negative and certainly the expectation of a recovery by the turn of the year – although muted, although slow, although very gradual and so on – is based on an improvement in the general sentiment, an abating in the sovereign debt crisis and in a somewhat improving market sentiment on the financial markets. Furthermore I would not exclude – I would not say a “strengthening”, but a situation for global external demand which would stabilise rather than fall. These are the assumptions on which our expectation of this slow, gradual recovery by the turn of the year is predicated.

Question: You have mentioned Ireland. Can I ask you about Portugal? As you know, the last troika mission to Portugal identified some growing risks in terms of budget execution this year due to the impact of the recession. Given the general goal of returning to the markets next year, as in the case of Ireland, do you think that the government, the authorities in Portugal should stand ready to take any additional measures necessary to achieve the given target? Or do you see a risk that, at this stage, further cuts will be counterproductive to the economy and to the target as well?

Draghi: Vítor, the floor is yours.

Constâncio: The conclusions of the review were that the programme was still on track in Portugal. There were some risks highlighted but the conclusion was positive. Also positive was the IMF’s analysis. So we have to wait and see how the economy will perform in the near future. But certainly all the conditions seem to be there for compliance with the programme which is, of course, a very important objective. The country has been assessed generally now in international markets as being on the right path and that should continue to be the case.

Question: What do you expect the impact of the rate cut to be? I mean, will banks lend more to the economy or will they lend at a lower price? Or is it just that they have a higher margin?

And the second question is: do you still see any shortage of collateral in the banking system?

Draghi: On the second question, the situation of collateral changes country by country and so nowadays we have several countries that have plenty of funding and so need less collateral. And there are some local, specific situations where countries are short of funding and need more collateral. I would rather not give names, but you can easily find out for yourselves.

Question: But it would be interesting to hear your point of view which countries…

Draghi: You can see where the strains, the funding strains, are in Europe; I am thinking of one country in particular where you can imagine they need collateral. You see, in a normally functioning euro area when a bank is short of funding, they simply borrow from other banks. But in a highly fragmented situation, when a bank is short of funding, they only can go to the ECB. And if the bank is solvent, the ECB stands ready to provide all the liquidity they need. That is important. We should not forget that. I have been saying this on and on and on since the beginning. The ECB is providing liquidity and will keep all liquidity lines open to solvent banks. Of course, the collateral they give should be acceptable and should not increase the risk of the balance sheets of the ECB. And that is what we have done so far. You have doubts, but that is what we have done so far.

We had announced this decision on 22 June and we do not pre-commit, but at the same time we think that the collateral framework will have to be revisited and this is not something we can come out with soon because it is highly complicated, but as I have said many times we should again present a well thought-out, well-organised framework for collateral eligibility.

On the first question, one could ask this question every time we change interest rates: what is the situation? It is clear that when demand is weak, the transmission of these price signals to the aggregate economy is muted. If you had strong demand, you have immediately passed through from the policy rate to bank lending rates. But if the credit demand is low, then we will look at it. But it certainly is a signal, it is encouraging, it should make entrepreneurs think that their investment decisions, trade-offs, are now better. So this is ceteris paribus. Of course, if the risk premium is high, then this will be less effective. If it is low, it will be more effective. But I think that this is a question that actually one should ask every time interest rates are changed. And unfortunately the answer is that this very much depends on demand for credit.

Question: I have two questions. You have cut the deposit rate to 0.00%. Could you talk us through the risks that you discussed on that? How do you make sure that you are not sowing the seeds for the next bubble?

My second question is: Given all the discussion about the ECB taking on banking supervision, what would the ECB have done to prevent the attempts to rig the LIBOR/EURIBOR rate?

Draghi: On the question of bubbles, one of the reasons for taking the decision that we have taken today is that we do not really see any risks for inflation expectations, on either side, certainly not on the upside in the short or medium term. And that has a lot to do with the weakening of the general economy, but also with the behaviour of oil prices, as we have to bear in mind, of course, that they could go either way. So, we had to take that into account. But the rest of the economy does not seem to be inclined to generate upward pressure on inflation.

As regards the LIBOR, I believe there is an enquiry taking place at this very moment. It does show that this process, which was considered fair and pivotal for the functioning of financial markets, was not fair. I therefore think that considerable action ought to be undertaken to improve the governance of this process at both levels. Both the level at which figures are contributed and the level at which the benchmark is produced. It is quite clear that governance at these two levels was weak – if not faulty. And frankly, I do not know what the ECB would have done, but I hope we would have done better.

Question: I have two questions. Apart from the interest rate decision, were there any other options that you discussed, such as other non-conventional measures, like a new LTRO?

And another question: A recent survey revealed that ECB staff feels overworked because of the many years of crisis. Especially now that the ECB is being given new tasks, such as banking supervision, do you share ECB staff’s worries that there may be an operational risk to the ECB? Does the ECB plan to hire more staff, and to what extent?

Draghi: On the first question, we did not discuss any other non-standard measures. And fairly unusually for me, I will also tell you why we did not discuss that – because we have to have non-standard measures which are effective, and they have to be effective in an area which is fragmented. So, that is why it is not obvious that there are measures that can be effective in a highly fragmented area. Even though, as I have said, market sentiment seems to be improving slightly. For example, one of the remaining benefits of the LTROs is, I think, that we have not seen signs of outflows from the euro area. And this is actually quite important. I think one of the reasons why the euro summit was such a success is that leaders showed that this is a monetary union that is meant to last. They showed their commitment to making it a success. They started identifying an end point – a goal. They started, through the Van Rompuy report, drafting a pact in order to achieve this goal and started identifying conditions that had to be satisfied in order to undertake this journey together. I think this is why the euro summit was viewed so positively by markets and by everybody.

On your second point, let me say that we are all – and I am especially – impressed by the extraordinary commitment that our staff show every day in undertaking tasks that have become more and more numerous, difficult and psychologically demanding. So, I would say that it is no surprise that they see themselves as overworked, and our assessment is exactly the same. The ECB has taken some steps to alleviate that stress and the Executive Board has discussed a proposal to increase the resources of the ECB – in a very modest way – in order to undertake some of the new tasks that have been given to the ECB in the course of the last two or three years.

Question: I wonder if you have a timeline in mind for when the ECB would be ready to assume this unified banking supervision, considering that there has been talk of the Commission’s proposal coming by the end of the year, but also given that fact that it is quite essential for this to be done quickly, as direct lending from the ESM to banks depends on it. I wonder if you have a date in mind when this would be fully operational?

My other question is: what is your interpretation of the EFSF/ESM bond-buying? Some leaders have said that this new “anti-spread” mechanism will work effectively, i.e. it will curb spreading to countries in difficulty, whereas other leaders have said that nothing has really changed from the agreements that were reached last year. I wonder what your view is on that.

Draghi: On the first point, we do not have a date, because, as I have said, the final proposal is a Commission proposal drawn up in consultation with the ECB and the European Parliament. I am sure that this will be done as speedily as possible. I would not dramatise too much the need for doing things fast. It is better to do things well. It has been said that this supervisory proposal and the eventual agreement should come very soon because this would enable the ESM to recapitalise banks directly. So, the two things have been linked with each other. But what happens if the proposal is not ready? Well, the public debt of an individual country will increase temporarily, because they will borrow from the EFSF. But we all know that this will occur with the expectation of a decrease later on, once the supervision mechanism is in place. So it is a temporary blip in public debt which can be easily absorbed by markets. We all want to have everything “well done” and “now”. But if I had to choose, I would rather focus on it being “well done”, because, if it is well done, we can then cope with whatever else occurs and we know that a delay of two or three months will not cause a drama.

On the EFSF/ESM, the agreement at the European summit was that purchases on the markets would be carried out in a flexible and effective way. This was the agreement. We should not forget, and some of the statements tend to forget, that everything – the ESM recapitalisation, the stepping-in of the EFSF or the ESM in the primary or secondary markets – is subject to conditionality. There is nothing without conditionality. Conditionality is what gives credibility to these measures.

Question: The labour reform has passed through in Italy. Do you have any comments on this? Are you happy with that?

And second, in lowering the deposit rates to zero, do you think this might accelerate the restitution of LTROs from banks – in some countries, not from others – to within one year, instead of three years?

Draghi: Well, on the first question, I have no comments.

On the second point, it is difficult to foresee how banks might behave. Frankly I do not expect banks’ behaviour to change dramatically in any way. Banks might have an incentive to return what they had in the deposit facility earlier if they were sure that, for most scenarios, they would not need that liquidity any time soon. At the same time, it is clear that currently it is a little more expensive for them. But let us not forget that they are also paying less on the LTRO exposure: so, they get less on the deposit, but they pay less on the other side. How this is going to affect their business decisions or their convenience decisions is very hard to predict.

Question: Is the Governing Council concerned about the impact of negative carry via negative yields for bonds and such, especially for non-banks? And does the Governing Council not think that a negative deposit rate could be risky and, if so, does that mean that the Governing Council rules out negative rates?

Draghi: We have not discussed this and, as usual, we will not commit to any further measures.

Question: My first question probably paraphrases what my colleague has just asked. In principle, would you consider operating under negative deposit rates?

And my second question is this: you have repeatedly stated that credit has mainly been driven by demand in recent months. Does that mean that the ECB is operating close to, or under, a liquidity trap?

Draghi: No, we do not think we are in that situation. And, frankly, on the other part of your question and your colleague’s question, I would say that, at this point in time, we are not really elaborating on various non-standard situations in which we may find ourselves. So, at this point in time we are not actually thinking about that.

Question: Is there any concern on the Governing Council that the ECB is now running low on policy options and that, if there is not an improvement as expected or hoped, there will be a need to turn to some more unconventional measures?

Draghi: No, there is no such feeling that we are running low on policy options. We still have all our artillery ready to contain inflationary risk in order to pursue the objective of price stability. Let me say one thing: when I say pursue the objective of price stability, I mean on both sides or in both directions. As I was saying, we still have all our tools to continue to pursue our objectives within our mandate and, as I said before, I do not think I want to elaborate on further non-standard measures at this point in time.

Question: I am getting a number of emails from market participants who wish for some clarification on a comment that you made earlier when you talked about the effect of this rate cut. You talked about the third effect that it had, i.e. that there were expectations of further easing of monetary policy in case price stability considerations were warranted and that this by itself has a positive effect, a stimulus effect. So, people want to know or are debating whether you are keeping the options open to cut rates further or introduce quantitative easing or whatever else. As I said, you will always have those kind of debates, but could you clarify exactly what you meant by this so that people will know.

Draghi: People are reading too much into this. You can translate what I said into this: whenever the bank pursues the objective of price stability in the medium term that in itself has a positive effect on the economy.

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