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, 4 April 2013

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.

Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. HICP inflation rates have declined further, as anticipated, and price developments over the medium term should remain contained. Monetary and loan dynamics remain subdued. Inflation expectations for the euro area 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, weak economic activity has extended into the early part of the year and a gradual recovery is projected for the second half of this year, subject to downside risks. Against this overall background our monetary policy stance will remain accommodative for as long as needed. In the coming weeks, we will monitor very closely all incoming information on economic and monetary developments and assess any impact on the outlook for price stability. It is essential for governments to intensify the implementation of structural reforms at national level and to strengthen euro area governance, including the implementation of the banking union. They should also build on progress made in fiscal consolidation and proceed with financial sector restructuring.

We are also closely monitoring money market conditions and their potential impact on our monetary policy stance and its transmission to the economy. As said on previous occasions, we will continue with fixed rate tender procedures with full allotment for as long as necessary.

Let me now explain our assessment in greater detail, starting with the economic analysis. The outcome for real GDP in the fourth quarter of 2012 was weak, with Eurostat’s second estimate indicating a contraction of 0.6% quarter on quarter. The decline was largely due to a fall in domestic demand but also reflected a drop in exports. Recent data and indicators confirm that the economic weakness extended into the early part of the year. Looking forward, euro area export growth should benefit from a recovery in global demand and our monetary policy stance should contribute to support domestic demand. Furthermore, the improvements in financial markets seen since last summer should work their way through to the real economy, notwithstanding recent uncertainties. Together, this should help stabilise euro area economic activity and lead to a gradual recovery in the second part of the year. At the same time, necessary balance sheet adjustments in the public and private sectors, and the associated tight credit conditions, will continue to weigh on economic activity.

This economic outlook for the euro area remains subject to downside risks. The risks include the possibility of even weaker than expected domestic demand and slow or insufficient implementation of structural reforms in the euro area. These factors have the potential to dampen the improvement in confidence and thereby delay the recovery.

According to Eurostat’s flash estimate, euro area annual HICP inflation was 1.7% in March 2013, down from 1.8% in February. The ongoing decline in annual inflation rates mainly reflects the energy component of the price index. Looking ahead, price developments over the medium term should remain contained in an environment of weak economic activity in the euro area. Inflation expectations are firmly anchored and in line with price stability over the medium to long term.

Risks to the outlook for price developments continue to be broadly balanced over the medium term, with upside risks relating to stronger than expected increases in administered prices and indirect taxes, as well as higher oil prices, and downside risks stemming from weaker economic activity.

Turning to the monetary analysis, the underlying pace of monetary expansion continues to be subdued. The annual growth rate of M3 moderated to 3.1% in February, down from 3.5% in January. The annual growth rate of the narrow monetary aggregate, M1, increased to 7.0% in February, from 6.6% in January. At the same time, MFI deposits in a number of stressed countries strengthened further in February.

The annual growth rate of loans (adjusted for loan sales and securitisation) to non-financial corporations and households remained broadly unchanged in February, at -1.4% and 0.4% respectively. To a large extent, subdued loan dynamics reflect the current stage of the business cycle, heightened credit risk and the ongoing adjustment of financial and non-financial sector balance sheets. At the same time, available information on non-financial corporates’ access to financing indicates tight credit conditions, particularly for small and medium-sized enterprises in several euro area countries.

In order to ensure adequate transmission of monetary policy to the financing conditions in euro area countries, it is essential that the fragmentation of euro area credit markets is reduced further and the resilience of banks strengthened where needed. However, considerable progress has been made since last summer in improving the funding situation of banks, in strengthening the domestic deposit base in stressed countries and in reducing reliance on the Eurosystem as reflected in repayments of the three-year LTROs. Further decisive steps for establishing a banking union will help to accomplish this objective. In particular, in the light of recent experience, we must emphasise that the future Single Supervisory Mechanism and a Single Resolution Mechanism are crucial elements for moving towards re-integrating the banking system and therefore require swift implementation.

To sum up, taking into account today’s decision, 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.

As regards fiscal policies, euro area countries should build on their efforts to reduce government budget deficits and continue to implement structural reforms, thereby mutually reinforcing fiscal sustainability and economic growth. Fiscal policy strategies need to be complemented by growth-enhancing structural reforms. Such reforms should be ambitious and broad-ranging, encompassing product markets, including network industries, labour markets and the modernisation of public administration. To support employment, wage-setting should become more flexible and better aligned with productivity. These reforms will help countries in their efforts to regain competitiveness, set the foundations for sustainable growth and support the return of macroeconomic confidence.

We are now at your disposal for questions.

* * *

Question: Mr Draghi, last month you told us that some Governing Council members had called for a rate cut, or that you discussed it. I am wondering whether calls for a rate cut have become even louder this month.

My second question is: did the debate about possible non-standard measures to help SMEs in the periphery gain access to adequately priced financing feature very dominantly in this month’s meeting? And perhaps you could give us some idea of what measures you are looking at, in particular whether the ECB would like to act alone or in tandem with the governments, and, in the case of any additional risks being taken on by the Eurosystem, whether that would be at the ECB or national central banks?

Draghi: On the first question, the discussion was extensive. I would say that, all in all, the consensus was not to look at rates for the time being. I will say more in response to the forthcoming questions.

On the other issues, we certainly discussed those as well, but allow me just to talk about things that we have done. As you now know, because I have said it several times, banks do not lend because of lack of funding, lack of capital or risk aversion. We have fully addressed the funding issue through a variety of instruments – non-standard measures, predominantly. And one of these allowed banks to lend to firms and use the loans extended to firms as collateral for their borrowing from the ECB, from the Eurosystem. Now, it so happens that this measure works beautifully in some countries but does not work at all in other countries. So, the issue now is to understand why it does not work in certain countries. What is not going well? That is one issue that we will have to look at.

Another point is that I think one should always be mindful of what the ECB can do and what it cannot do. We cannot replace capital that is lacking in the banking system. That is quite clear. We cannot compensate for lack of action by governments – for example, in some countries the most powerful stimulative measure that the government can undertake is to pay back the arrears, which in some cases amount to several percentage points of GDP. The ECB cannot replace governments on that front. The ECB cannot replace governments’ lack of action on the structural reform front.

Finally, when we look at measures undertaken by other countries, or by other monetary policy jurisdictions – always keeping in mind that our institutional set-up is different, and we have to act within that set-up – we see that, first of all, not all experiences are encouraging. We see that some of these measures have been taken but with very little reaction on the credit side. In other cases, the measures were suited to the specific financial market set-ups. In other words, when you have a very important share of financial intermediation taking place through capital markets, then you have assets that, potentially, the central bank may decide to buy. These assets have a price, have a rating. In the euro area we have only a small share of financial intermediation taking place via capital markets, and a large share, roughly 80%, taking place via the banking system. So in the specific case of the euro area, all these initiatives are much more difficult. I think you rightly hint at the necessity for other actors, like governments, like special agencies, like the European Investment Bank, to play a role in this. I think that is right. I would also add that the euro area national central banks could play a role. When we come to looking at the credit risk, it is quite clear that all these actors have a role to play. So I think we will continue thinking about these issues from a 360-degree perspective. We will continue studying various possibilities for action, but you should always remember that both our institutional set-up and the experience of other countries tell us that we have to think deeply before we can come up with something that is useful, feasible, and consistent with our mandate.

Question: Following-up on your answer just now, you sound like someone who does not necessarily have a lot of tools in your policy toolkit, or who does not have a lot of confidence that if you were to do things either on interest rates or on non-standard measures, that they would do much good. Are you running out of tools to help the economy? Is it up to governments, is it up to other actors, or should people still be looking to the ECB for some help either on combating any disinflation trends or on helping with the economy.

And I wanted to ask you a question on Cyprus. Could you clarify what the ECB’s position is or was on the first Cyprus deal that included a bail-in of all depositors because it did not seem like the ECB spoke out against, or raised public objections to, that initially. Were you on board with that and what does that mean for depositors in the euro area going forward?

Draghi: Let me answer to the first question, which really addresses both standard and non-standard measures that the ECB could take. With respect to the standard measures, let me go back and say it again: we acknowledge that developments recorded in last year’s fourth quarter have extended into this year and show weakness. Second, we now have confirmation that the HICP is edging down, to well below 2%, although with some volatility and certainly depending on energy prices and exchange rate developments. Third, we can now see that this weakness is extending to countries in which fragmentation is not an issue. Fourth, although they are still modest, we are now also seeing signs of reduced fragmentation, at least on the funding side, also in the stressed countries – we are starting to see some signs on that front. Our monetary policy will remain accommodative – do not forget that the EONIA, the very short-term interest rate, is standing at about 7 basis points, or at 6 basis points now, which is almost zero. But having said that, we will assess all incoming data and stand ready to act.

As far as the non-standard measures are concerned, I think that what I have said before stands, namely that we are looking at various instruments, various tools, and that we are of course taking other countries’ experiences with such initiatives into account. We have to see which tools are feasible and effective in our specific institutional context. On the one hand, we will surely have to rely on the intervention of and on the actions of other parties concerned. And, on the other hand, I think the role of national central banks in assessing credit quality becomes important when you come down to the national credit situation.

On Cyprus – I expect many more questions on Cyprus, so that I will only respond to your question narrowly, the fine question as to what the position of the ECB was. The ECB had presented a proposal that did not foresee any bail-in of insured depositors. And let me also tell you that this was exactly the same for all the other proposals – the proposals by the Commission and the IMF had exactly the same feature. Then there were prolonged negotiations with the Cypriot authorities, represented at that meeting, the outcome of which was what you know, namely a levy also on insured depositors. That was not smart, to say the least, and it was quickly corrected in a Eurogroup teleconference on the next day. But that is what is past.

Question: Two questions – first, I would like to ask about the Bank of Japan which announced a radical easing plan this morning. Do you see this as a sensible plan and how much of an impact do you see this having on your policy? Does it weaken the yen too much and does it have an impact also on euro area inflation, and exports in that sense? And related to that, does it provide an unfair advantage along the lines that your colleague Benoit Cœuré spoke about earlier this week and, basically, could this result in a race to the bottom?

Second question: coming back to the interest rates, you said that you stand ready to act, that you will be monitoring all incoming information very closely in the coming weeks. Does that mean that if information in the next month is similar to this month’s, you will be ready to cut, or does it will have to get worse than that?

Draghi: The second question implies that we would in a sense, as my predecessor used to say, “pre-commit”, and we are not undertaking any pre-commitment on this today.

On the first question, our exchange rate is not a policy target. But our exchange rate is important for growth and for price stability. We take exchange rate developments into account in the formulation of the strategy of our monetary policy, just like we take other developments into account. So, that is what I can say today.

Question: If I am allowed a very quick follow-up. When you say that you do not pre-commit, when you state that you will keep monetary policy accommodative for as long as needed, is that not a sort-of pre-commitment?

Draghi: We do not pre-commit on interest rates.

Question: With regard to Cyprus, there was a statement from the President of the Eurogroup saying that “we will take this bail-in as a template for future cases”. What is your opinion on that?

Furthermore, with regard to the instability in Italy, do you think that this is having a knock-on effect on confidence not only in Italy itself, but also on the rest of the euro area and financial markets?

Draghi: First, if anything, the events in Cyprus have reinforced the Governing Council’s determination to maintain the euro, while ensuring price stability and acting within its mandate.

Second, thanks to OMTs and to what I call the “positive contagion” in the financial markets that took place several months ago, we are now in a position to cope with serious crises without them becoming existential or systemic. It should also be kept in mind that there is now a very large liquidity surplus of €376 billion. To give you an idea of how markets have reacted to the events in Cyprus: today’s data show that TARGET2 balances continue to decline and that slightly less than 50% of the net amount injected by the LTROs has been repaid – proving wrong all those who thought that huge risks were taken with the LTROs. The events in Cyprus have also shown that we are ready to act within our mandate. When the Governing Council objected to Emergency Liquidity Assistance (ELA), it acted within its mandate. It objected to extending ELA to non-viable banks and thus did not replace what could have been fiscal action.

Third, let me stress that Cyprus is not a template! I have not had chance to talk to the President of the Eurogroup, but I am absolutely sure that he has been misunderstood. After all, the bail-out of the Dutch bank SNS REAAL, which involved the bail-in of only shareholders and junior debtors to the tune of €4 billion, had been agreed only a few days earlier. And that is no template either.

Let me now share with you some of the lessons that have been learnt from this experience. First, the entering into force and implementation of the Single Supervisory Mechanism (SSM) is absolutely essential. There is no better way to prevent such crises than to shed light on the situation of the national banking systems through the sort of international oversight that would be provided by the SSM. This applies to Ireland, Spain, Greece and now Cyprus. Any delay on this front is therefore extremely disappointing.

Second, I think we should also ask the question what makes a bail-in a problem? A bail-in in itself is not a problem: it is the lack of ex ante rules known to all parties and the lack of capital buffers or other “bail-inable” assets that may make a bail-in a disorderly event. The existence of buffers of “bail-inable” assets is therefore essential. In the case of Cyprus, one peculiarity was the fact that these assets were actually quite limited by comparison with the size of the banks’ assets. Furthermore, the absence of ex ante rules gives the impression of an ad hoc approach in such situations, which is unavoidable in the absence of rules because there are differences in size – in the sense that Spain is not Cyprus – and differences in time – in the sense that the events in Ireland and Spain took place at completely different times. There is thus a need for rules. The European Commission is the one that writes the rules, no one else. A draft directive is now under discussion in the European Council and the European Parliament that specifies a pecking order of the categories of asset holders that could be bailed-in. In this context, we would really like to see these rules enter into force, not in 2018 or 2019 as is envisaged, but much earlier, for example in 2015.

Finally, there is an urgent need for a European framework for the resolution, restructuring and recapitalisation of the banking systems.

With regard to your question on the instability in Italy I have no comments.

Question: Again, on the resolution mechanism, do you not think that the same countries, the northern countries of Europe that devised the bail-in solution, will be the ones that could stop this mechanism? This is the fear, for example, in Italy.

My second question is: many newspapers talked about a telephone call that you had last week with the President of the Italian Republic, Giorgio Napolitano – which has been confirmed by his spokesman – and I wanted to know if you could tell us what you talked about during that telephone call and if something is worrying you about the current impasse in Italy?

Draghi: On the second question, the answer is the same as before. I will not comment on Italy; I got a call and I responded. That is what humans usually do when they receive telephone calls: they respond to them and that is it. There is nothing to say about what we discussed and the same applies to the general situation in Italy.

On your first question, it is quite clear that there are different views on this and on mutualising potential losses stemming from banking systems. First of all, the Single Supervisory Mechanism (SSM) would not actually call for a mutualisation of losses, so it could actually speedily proceed. The second point is that much of the restructuring and resolution framework would not necessarily call for a mutualisation either. I would say that the challenging aspect is coordinating the different bankruptcy laws in different parts of the euro area. So this could also go ahead speedily. I am sure that the European Commission has done a splendid job on both accounts and the Council is now called to sign these two proposals, so that they can enter into force as soon as possible, because we have seen that they are crucial for stability.

Question: Mr Draghi, you said in your opening statement that bank resilience needs to be strengthened – basically by recapitalising the banks that need it – and you have just touched on it again with the European Commission proposals, but that is all still some way off. Given that there seems to be a bit of a sense in some policy circles at the moment that, as you say, a bail-in is not such a bad thing, should people who deposit in banks over the insured level expect, more and more, to see those deposits become part of a bail-in, and is that the only way that you can tackle the lack of capital in the banks?

Secondly, since we talked about it last month, I just wanted to go back to OMTs and the legal documentation. How close are we to having that ready?

And, thirdly, related to that, if a country did suddenly apply for OMTs, would you be able to get the legal basis ready in time?

Draghi: The answer to the third question is yes, absolutely.

On the second question, it is being worked on and will come out when it is time, so there is no news on that front.

On the first question, there is a pecking order: ideally, uninsured depositors should be the very last category to be touched. The European Commission draft directive foresees exactly this. There is not, at present, a specific distinction between categories of bond holders and uninsured deposits in the draft directive but the point is that, if it can be avoided, uninsured depositors should not be touched. Banks should not only be properly supervised – with a view to them not outsizing the economy in which they reside – there should also be enough buffers, be they of capital, be they of other “bail-inable” bonds or of other sorts of “bail-inable” liabilities. I would say that, to a great extent, if you were to look at the other jurisdictions’ resolution mechanisms, you would not see much of a difference.

Question: If you go back to a case like Northern Rock, where their problem was that they were reliant on wholesale funding, and then you look at Cyprus where they are apparently almost exclusively reliant on retail funding, should regulators be looking at balancing the two and say that banks should not be too reliant on one particular kind of funding?

Draghi: Certainly. It is also another detail that I think should be looked at. The Federal Deposit Insurance Corporation makes an explicit distinction between uninsured depositors which, in general, are not touched, and bond holders. I think that the same distinction should be present in the European Commission’s draft directive. I think this is another lesson we can draw from Cyprus.

Question: Going back to the economic situation for a moment, it seems that the upswing is postponed again and again. People are told that the situation will improve but it’s just getting worse and worse. My question would be: is there something wrong, probably, with our modelling of the economic situation. Are we underestimating fiscal multipliers or are there other factors which probably go wrong.

And one short question on Cyprus: some people in Cyprus and economists are now saying that Cyprus might be better off leaving the euro because the banking system is already destroyed and there is much that can go wrong. How would you comment on suggestions like this one?

Draghi: On the second question, what I would say is that what was wrong with the Cyprus economy doesn’t stop being wrong if Cyprus is outside the euro area. The fiscal budget consolidation and the restructuring of the banking system would be needed anyway, whether Cyprus is “in” or “out”. Being “out” doesn’t mean the country avoids the need for action, but exiting entails many risks, big risks. A country would find itself having to pursue the needed reforms in a much more difficult environment outside. That is something I don’t want to elaborate on any further but that is my answer.

On the first question, I don’t think fiscal multipliers have been underestimated. Domestic demand turned out to be weaker than expected, essentially because of the heightened uncertainty and lack of confidence. That is what is actually playing a big role in the euro area now. Don’t forget what happened a year ago and don’t forget what has happened since the second part of 2010. We had several events which impinged upon the functioning of the credit system. We had PSI in Greece, we had the EBA stress test, we had the redenomination of risks and then we had – most importantly – the enormous amount of bank bonds coming due in the first quarter of 2012. I think we have discussed this on other occasions. We had something like €230 billion in bank bonds coming due in the first quarter of 2012, plus over €300 billion in sovereign bonds coming due at the same time. So the banks in fact started reducing credit way before then. As a matter of fact, they started reducing credit, especially in the periphery, around mid-2011. So, now we are living through the consequences of this, on top of which there were of course the short-term contractionary effects of the fiscal consolidation undertaken in most euro area countries all at the same time.

Question: Mr President, we see in some European countries – after the recent decisions on Cyprus – discussions about non-elected central bankers pushing democratically elected politicians to measures they and their parliaments don’t really want. Does this discussion “touch” you in any way?

Draghi: The answer is an emphatic “no” because, if you look at, for example, the case in point – Cyprus, we acted exactly within our mandate. We would have been acting politically if we had not done this. First of all, ELA is the responsibility of the national central bank and not of the ECB. It can be extended only to solvent and viable banks. Now, it so happened that in the absence of a programme, these banks would not have been solvent and viable. At that point in time the Governing Council assessed there was no programme in place, and that’s why it had to do what it did. On all other occasions there was a programme in place. That’s why when people ask us why we didn’t do this on other occasions, the difference is that there was a programme in place, which led the Governing Council to assess that banks were solvent and viable. I don’t think that the view that we are acting politically is actually correct. We have a mandate, which has been given to us by the legislators, and we are acting within that mandate.

Question: A question regarding Ireland. This week both the Troika and the IMF put reports out on Ireland. The IMF, in particular, pointed to the role of the ESM in helping Ireland’s debt sustainability. And specifically Mr Dijsselbloem said following the Cyprus crisis that he did not envisage that the ESM would be used. So I am just wondering what your view is on that and whether you have any view on the request to adjust the maturity of the Irish and Portuguese bailout loans (there should be a decision on that next week) and how that fits into the whole return to the markets for Ireland?

Draghi: Well, I am not sure what the question on the ESM was, the potential use of the ESM?

Question: …the ESM to directly recapitalise banks in Ireland (AIB and Bank of Ireland)…

Draghi: This is a decision that pertains exclusively to the fiscal authorities, the Eurogroup, not the ECB. Having said that, we view positively any measure that cuts the link between sovereigns and banks. The second point was?

Question: About the adjustment of maturities for the Irish and Portuguese loans. Again maybe this is a Eurogroup issue. But just in terms of the return to the markets, the Troika this week in their report really raised questions about certain things in the Irish economy, about the banking sector. Are there any concerns from your point of view about the return to the markets by Ireland?

Draghi: Well, on other occasions, I have defined what we mean by the return to the markets by a country. It has to be able to issue across the whole maturity spectrum, in sizeable amounts to a variety of buyers, and we have also specified other features, which continue to apply.

Question: You spoke about other measures in order to sustain the economy. Could you tell us if there are any precise measures that you discussed?

And some people are criticising the fact that you are lagging behind other central banks in the way you are supporting the economy. What is your answer to this criticism?

Draghi: On the first point, I said before that we discussed – and we always discuss – a variety of measures. We have to again be aware of what we can do and what we cannot do and what we can do within our institutional set-up. And we will certainly look at other countries’ experiences to see what feasible, institutionally acceptable and effective measures we can undertake. So, that is what I can say at this time. It is not an obvious problem, and action is not obvious. It does demand a lot of thinking and also participation, as I said, of other actors: governments, the EIB and other agencies and national central banks.

On the other point about lagging behind in supporting the economy, let me mention what has been, in our sense, the most powerful monetary policy instrument so far: the OMTs. With the OMTs, the interest rates on a ten-year bond went down from 7.39% to 4.87% today for Spain, and from 6.45% to 4.52% for Italy, and in Germany interest rates on the ten-year Bund actually went up from 1.25% to 1.46% before the current uncertainty drove them down again. So, the monetary impact of OMTs has been very powerful, not only on sovereign bonds but also on corporate bond spreads. Pre-OMT, the spreads on BBB-rated euro area corporate bonds stood at 216 basis points for non-financial companies and they are now 140 basis points. For financial companies they were 637 basis points pre-OMT and they are now 250 basis points. Stock prices went up by something like 20-30% on average. Volatility went down again by about 30%. And the other encouraging news from financial markets is that the deposit base continued to strengthen also in stressed countries. The other thing that points to a slight decrease in fragmentation is that the dispersion in the rate of growth of deposits – the cross-country dispersion or standard deviation – is going down and is actually half of what it was before OMTs. So you see that all this has certainly given a lot of support to the euro area economy.

Question: Coming back to Cyprus and the first proposal, you said that the ECB did not want deposits under €100,000 to be taxed, but at the same time you did sign off on it and it did go to the separate parliament. So my question would be: did you make any mistakes, and would you do the same again, or should you not have signed off on it at first?

The second question is on the emergency liquidity assistance. When these loans are provided by national central banks to a particular bank, are they senior to unsecured deposits at this particular bank, and senior to unsecured debt issued by that particular bank?

Draghi: I already answered the first question by saying it was not a smart move and it was corrected the following day.

As for the second question, there is nothing in the market that says that the ELA is senior, but if you want to remain as a counterparty in the ECB’s monetary policy operations, it should certainly be treated as such.

Question: Cyprus led to a more general discussion about business models, especially in some smaller euro area countries, and it has been suggested that these countries should shrink their financial sector, as it is too large in relation to their GDP. Do you agree with this suggestion or is it, perhaps, from your point of view, rather out of date, given that we are heading towards a banking union with a common resolution scheme where the size of the financial sector in relation to national GDP might be less relevant than in the past?

Draghi: I think it is a good question. Recent experience shows that countries where the banking sector is several times larger than the economy are, on average, more vulnerable. Financial shocks hit these countries harder – simply because of the size of their banking sector – than countries where the banking sector is a smaller component of the economy. We have seen this everywhere, really, beginning with the United Kingdom. So, what to do? Well, one thing is to downsize, but other things can be done. You have to run your country and your banking system in a more conservative way than you would do normally. Namely, do not have budget deficits, and maintain large capital buffers or large buffers of “bail‑inable” assets. That is the sort of advice one could give. It is very difficult to choose, ex ante, what your business model is; in fact you only realise that your country’s business model is wrong when a crisis arrives. But I think people ought to learn from what we are currently experiencing and follow this advice – namely, run both the country and the banking system much more conservatively.

Question: Can I ask whether your indication of a return to conventional tools indicates that you are actually running out of effective alternative options, at a time when the macroeconomic outlook is deteriorating?

Second question: could you please address the perception among investors and European voters, particularly in a German election year, that you are the de facto head of the euro area and the buck stops with the ECB?

Draghi: Let me answer the second question first. If that were the case, it would not be good. As a matter of fact, one of the reasons why the ECB’s OMTs were successful was because governments made significant progress in undertaking both fiscal consolidation and, in some cases, structural reforms. Furthermore, I would say that 2012 has been a fairly extraordinary year in terms of the progress that has been achieved at the level of euro area governance. Many initiatives were launched, so the buck does not stop with the ECB, it is really a three-pillar construction – all three are essential. But certainly it is important that progress continues; it is not something where one can be complacent and rest on past successes. The first question was what, sorry?

Question: It was just whether your indication of a return to more conventional policy tools indicates that you are running out of effective options on alternative fronts, at a time when the macroeconomic outlook is deteriorating?

Draghi: That is not what I said. We are thinking about all angles of both the non-standard and standard measures. I acknowledge the weakness that has been transferred into the first part of this year. I said that HICP inflation is edging down well below 2%, and will actually stay below 2% for the coming year. I also said that the weakness is now spreading to countries where there is no fragmentation, and that even in stressed countries we can see some diminishing signs of fragmentation on the funding side. So, having said that, and having said that our monetary policy remains accommodative, according to all standards, we will assess all the incoming data in the coming weeks and we stand ready to act.

Question: Just following up on an earlier question from one colleague. So, there has been a new regime at the Bank of Japan and they have embarked on – to quote some policy-makers – “monetary policy of a different dimension”. And my question is, do you have any concerns about the potential spillover effects of many of the major central banks being engaged in unconventionally expensive policies at the same time?

Draghi: As I said before, the exchange rate is not our policy target, but it is important for growth and price stability. We take this into account in our monetary policy strategy as one of the many elements that we look at. Just look at what happened to the exchange rate in the last two months. It went up in the beginning of January, in a sense, at the high point of the return of confidence in the euro after the OMTs, and then it went down. The reasons for these movements are several. So, we will always look at the complete picture here. There are many, many different factors that affect the exchange rate. Also, I think as far as other comments on the exchange rate are concerned, I would refer to the G20 statement that has been signed by all the governments, including Japan. There is no need for me to find and read this statement to you again, because I think I have done so two or three times.

Question: Mr Draghi, I have got a couple of questions from viewers at Zero Hedge. And one of them goes like this: Say the situation in Greece or Spain deteriorates even further and they want to, or are forced to, step out of the euro area. Is there a plan in place so that the markets do not basically collapse, or is there some kind of structural system like a structural safety net, especially in the area of derivatives?

And the second question is, you spoke earlier about emergency liquidity assistance. And what would have happened to the ELA in Cyprus, the approximately 10 billion euro, if the country had decided to leave the euro area?

Draghi: You are asking questions that are so hypothetical that I do not have an answer to them. However, I may actually have a partial answer. These questions are formulated by people who vastly underestimate what the euro means for the Europeans and for the euro area. They vastly underestimate the amount of political capital that has been invested in the euro. And so, they keep on asking questions like “if the euro breaks down” and “if a country leaves the euro area tomorrow”. The euro is not like a sliding door, it is a very important thing; it is a project in the European Union. So, that is why you will have a very hard time asking people like me “what would happen if?” There is no plan B.

In addition, I think the ECB has shown its determination to fight any redenomination risk, and OMTs, with their precise rules, are there for this purpose. So, that is the answer to the first question.

The second question was about ELA, but again, it is related to “if Cyprus leaves” and we do not have that in mind. There is no plan B.

Question: Just one question again about Cyprus. Mr Dijsselbloem said that involving private investors and private depositors of over one hundred thousand euro has been a turning point – in the sense of not involving taxpayers’ money so much anymore – in the policy of the Eurogroup and that this was also supported by Berlin. . First, is it true? And this plan actually coincides with the European Commission draft resolution mechanism. So, much ado about nothing?

Draghi: I already answered this question. Cyprus is not a template; Cyprus is not a turning point in euro area policy. We have said many times that our resolution – and I said the very same thing when I was Chairman of the Financial Stability Board – is to resolve banks without using taxpayers’ money and without disrupting the payment system. That is why we have to have a resolution framework in place. So, it is not a turning point. That is exactly the resolution framework that all other countries have and the euro area will have. Therefore, I am sure that Mr Dijsselbloem is being misunderstood. Incidentally, he also said so himself.

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