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

Mario Draghi, President of the ECB,
Frankfurt am Main, 5 December 2013

Jump to the transcript of the questions and answers

Ladies and gentlemen, I am very pleased to welcome you to our press conference. I 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 keep the key ECB interest rates unchanged. Incoming information and analysis have confirmed our assessment and monetary policy decisions of last month. 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 continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2%. Such a constellation suggests 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. Our monetary policy stance will remain accommodative for as long as necessary, and will thereby continue to assist the gradual economic recovery in the euro area. In this context, the Governing Council confirmed its forward guidance that it continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time. This expectation continues to be 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.

Let me now explain our assessment in greater detail, starting with the economic analysis. Following a rise of 0.3% in the second quarter of 2013, real GDP in the euro area increased by 0.1%, quarter on quarter, in the third quarter. Developments in survey-based confidence indicators up to November are consistent with a positive growth rate also in the fourth quarter of the year. Looking ahead to 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 last year 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.

This assessment is also reflected in the December 2013 Eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP declining by 0.4% in 2013 before increasing by 1.1% in 2014 and 1.5% in 2015. Compared with the September 2013 ECB staff macroeconomic projections, the projection for real GDP growth for 2013 has remained unchanged and it has been revised upwards by 0.1 percentage point for 2014.

The risks surrounding the economic outlook for the euro area are assessed 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 increased in November 2013 to 0.9%, from 0.7% in October. The increase was broadly as expected and reflected, in particular, an upward base effect in energy prices and higher 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%.

Broadly in line with this assessment, the December 2013 Eurosystem staff macroeconomic projections for the euro area foresee annual HICP inflation at 1.4% in 2013, at 1.1% in 2014 and at 1.3% in 2015. In comparison with the September 2013 ECB staff macroeconomic projections, the projection for inflation for 2013 has been revised downwards by 0.1 percentage point and for 2014 it has been revised downwards by 0.2 percentage point.

The risks to the outlook for price developments are seen to be broadly balanced over the medium term. Upside risks relate to higher commodity prices and stronger than expected increases in administered prices and indirect taxes, while downside risks stem from weaker than expected economic activity.

Concerning the staff macroeconomic projections, let me inform you that the Governing Council has decided to publish more details as of December 2013. You will receive this material today after the press conference.

Turning to the monetary analysis, data for October confirm the assessment of subdued underlying growth in broad money (M3) and credit. Annual growth in M3 moderated to 1.4% in October, from 2.0% in September. This moderation was partly related to a base effect. Annual growth in M1 remained strong at 6.6%, reflecting a preference for liquidity, although it was below the peak of 8.7% observed in April. Net capital inflows into the euro area continued to be the main factor supporting annual M3 growth, while 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 October, broadly unchanged since the beginning of the year. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) was -2.9% in October, following -2.8% in September and -2.9% in August. 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 ECB’s comprehensive assessment before it adopts its supervisory role under the single supervisory mechanism 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. Further decisive 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, the Governing Council welcomes the European Commission’s assessment of the 2014 draft budgetary plans which were submitted in October for the first time under the “two-pack” regulations. This new surveillance exercise needs to be fully effective. In order to put high public debt ratios on a downward path, governments should not unravel their efforts to reduce deficits and sustain fiscal adjustment over the medium term. In particular, consolidation measures should be growth-friendly and have a medium-term perspective, so as both to improve public services and minimise the distortionary effects of taxation. At the same time, there is a need to push ahead with product and labour market reforms, in order to improve competitiveness, raise potential growth, generate employment opportunities and foster the adaptability of our economies.

We are now at your disposal for questions.

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Question: Mr Draghi, you said that you expect inflation to be 1.3% in 2015. Recently, you talked about the need to act in November to create an inflation buffer. Do you now think that you have enough of a buffer to render the threat of deflation less acute? In relation to that forecast, you said that you expect inflation to climb to the ECB’s target of below, but close to, 2%. However, the highest forecast we have is 1.3% in 2015. Is that good enough for you?

Second, Mr Constâncio has said that negative deposit rates would be only used in extreme circumstances. Could one of you maybe give us a better idea of what constitutes extreme circumstances?

Draghi: First of all, our decision to cut rates in November has proved to be fully justified. The message I would like you to take home with you today is that our forward guidance is working. The rate cut, as well as our commitment to conduct the main refinancing operations as fixed rate tender procedures with full allotment extending into 2015, have led markets to conclude that our monetary policy stance will remain accommodative for an extended period of time. The forward curve is now back where it was in May. We are pleased with this development, which is fully justified given the subdued outlook for inflation in the medium term. It has also shown greater clarity in our reaction function. Other positive consequences of this set of decisions include an impact on the EONIA curve and a slope in the EURIBOR curve, a decline in the yields of many non-core government bonds and senior unsecure bank bonds, and a pick-up in bank bond issuance, even for stressed countries such as Portugal and Ireland – and all this has had no impact on equity markets. We have also seen a slight reduction in fragmentation and, after two months of stabilisation, today’s data show a renewed decline in TARGET2 balances. Cross-border flows have also stabilised at pre-crisis levels. All in all, we have seen positive developments both before, and in particular after, our decision in November. For example, there has been a negative net issuance of government bonds, but this has had no appreciable impact on the yields of these bonds. All this has happened against the background of inflation expectations remaining firmly anchored in the medium to long term. As not only markets but also survey indicators show, the second consideration is that while the HICP path is what it is, as I have just discussed with you a moment ago, inflation excluding food and energy drifts slightly higher over the forecast horizon. The final point I would like to make is that it would be wrong to think that we determine our monetary policy on the basis of a single figure for inflation. It would also be wrong to think that the effects of our monetary policy are instantaneous. They are anything but that. It takes time for the full effects to materialise and the amount of time it takes depends on many factors, in particular two. What is the state of banks’ balance sheets? And what is the state of the private sector’s balance sheets? The greater the deleveraging process that needs to be undertaken by both banks and corporates, the longer it will take for our monetary policy to have its full impact. That is why the asset quality review is so important, because it could actually shorten this period of time.

Question: I have got two questions for you. Number one, earlier this year you said you would update us with news on a potential release of minutes or summaries of your deliberations in the Governing Council. As you pointed out, this is the last meeting this year, and we still did not hear anything – or can you actually enlighten us on whether there has been a decision? My second question is: the ECB Governing Council members have cited a number of possible policy measures, including negative interest rates and quantitative easing, some of which would be seen as very extreme, especially in the context of the euro area. Nobody has ever mentioned the option of FOREX interventions though – does that mean that is not a tool the ECB would be ready to consider?

Draghi: On the first question about the minutes, we have started working in the Executive Board and we are continuing to work. It is a very complex issue, it has many dimensions. The one that is most popular is whether the names or “who does what” ought to be there, and there are many other issues. Especially for an institution that never had minutes before. So, we are preparing our proposal for the Governing Council, which, by the way, has already discussed this issue to some extent today. We are moving forward. We are slightly late, and the delay is justified by the complexity of the issue, frankly. On the second point, you know what the policy of the ECB and the other major central banks is. Exchange rates are a matter of common concern. And they are not a policy target by the way. I have said this many times. So they are not a policy target. Our policy target is price stability in the medium term. However, the exchange rates are important for price stability, as we are seeing today, and for growth. So, we take this into account in our monetary policy decisions. The experience of what you are saying – unilateral FOREX intervention – is not contemplated by the current G20 agreements.

Question: My first question would be on the potential new LTRO, or if you would consider something like the Bank of England’s programme “Funding for Lending”, above all looking at the ever-decreasing lending activities. And my second question would be: you are always saying that you are watching money markets very carefully and you have all available instruments in your hands. What has to happen to use those instruments?

Draghi: I think I can respond to both questions with one answer. Basically, the message the Governing Council sends today is that we are ready and able to act, within the forward guidance framework. Forward guidance is there. We did not identify, amongst the various, numerous instruments we have, one specific instrument in the discussion we had today. We had a brief discussion about negative deposit rates, but it was brief. That is one point I want to make: readiness to act; ability to act within the framework of forward guidance; but a variety of instruments ready – technically ready, they have been worked out, they are there. And we had a brief discussion on negative deposit rates. On the LTRO – as you mentioned specifically – I would take this opportunity to make a point here. When we conducted the LTROs two years ago, the level of uncertainty was very high. And therefore the long-term liquidity, three-year liquidity, was justified by that level of uncertainty. Furthermore, we view the LTRO as a very successful monetary policy measure: it did avoid severe further credit contractions arising from lack of funding at the time. The funding situation was extremely stressed. You remember – I have told you several times – we had EUR 250 billion of bank bonds due within one term, within one quarter, and we had more than EUR 300 billion of government bonds coming due within the same quarter. This was coming after the second part of 2011, which had been a period of dramatically increasing stress. Now, today the situation is fortunately substantially different. The level of uncertainty is considerably lower, and that is one consideration to keep in mind. The second consideration is that the use that these banks have made of this liquidity has been mostly to buy government bonds. And I think it is basically a fact of this experience that not much of this actually found its way through the economy. So, if we are to do an operation similar to the LTRO, we will want to make sure that this is being used for the economy. And we will want to make sure that this operation is not going to be used for subsidising capital formation by the banking system under these carry trade operations.

Question: I want to get back to this point about all these numerous policy options you have. Maybe you could give us some verbal meeting minutes and just run down them and give us a sense of what the state of play is on the thinking on, for example, negative deposit rates. You talked about it briefly – what did you talk about? Asset purchases. What kind of discussion do you have about these things, why are they good ideas and why aren’t you really implementing some of these yet?

My second question is this: I want to go back to something you said last month about the fundamentals in the euro area being probably the strongest in the world. If that’s the case, why do you have such a weak economic growth forecast – just 1.5% in 2015? Wouldn’t an economy with such good fundamentals respond to stimulus from the ECB/from fiscal policy?

Draghi: On the first question, I really have to say again what I said before: no specific instruments were identified in our discussion and I would say the level of preparedness is pretty high on all of them. So we don’t need any further analysis on that, but then the key question is whether or not any further use of these instruments would be justified by the current medium-term assessment and medium-term outlook for inflation. I think that is the key question. As I said after our decision in November, we have seen that markets have responded. The impact of our forward guidance has been quite strong. This has worked and inflation expectations are firmly anchored. However, having said that, we will certainly monitor any developments closely and let me say that we are fully aware of the downside risks that a protracted period of low inflation does imply.

The second point is that the fundamentals of the euro area are strong in a sense because the major policy mistakes of the previous years are on the way to being corrected. The euro area can afford to make the structural reforms it needs. In this sense, the fundamentals are strong. To generate growth, you need stimulus, but you also need to correct the structural imbalances. The governments of the euro area have to undertake the structural reforms they need to make. As I just said in the introductory statement, there is no doubt that low growth is the outcome of economies that need to have structural reforms, both in the product and the labour markets, but also in many other sectors, such as education and the judiciary. So it depends. Each country has its own specific list of work that it has to do. We have discovered, by the way, that neither growth nor equity can be expected from endless debt creation. So, when we use the word stimulus, we have got to be very, very careful. The reality is that the economies have to be prepared, structurally prepared, for the stimulus to actually produce its effect in a sustainable way.

Question: You said before that you briefly discussed the negative deposit rate, since when I have heard some voices here in this house saying that if you go into this negative territory, then, in parallel with a rate cut, both main interest rates will be lowered simultaneously with entry into this negative territory. So, my question is: did today’s decision about this include both decisions at the same time? Was there a discussion about a rate cut? The second question is about exchange rates. In February 2013 exchange rates were mentioned in the statement as a downside risk for growth. This has not been the case since then. Should we consider that exchange rates are not really a risk, although at the time in February the USD/EUR exchange rate was 1.35, nearly the same as today? Does the euro area have to accept this high exchange rate? Is it not really a risk?

Draghi: My answer to your first question is no, meaning that we had a brief discussion which was not in any great depth and did not touch on any technical aspect of this possible measure.

On the second point, the fact that the statement is not there does not mean anything. The exchange rate is, as I said, important for price stability and growth. And the levels are by and large the ones that were there when the statement was included. So, we are watching the exchange rate, but you must always keep in mind that it is not a policy target. It is part of the information set that leads us to take monetary policy decisions, the objective of which is price stability in the medium term.

Question: In Portugal, we are six months from ending the adjustment programme. In what condition do you see Portugal exiting this programme? And do you think that a negative decision from the constitutional court might put this exit in doubt?

Draghi: I would say that the progress in Portugal has been very significant. The Government, the economy and the population have made extraordinary progress in addressing the shortcomings that were present at the beginning of the crisis, and the prospects for a return to market financing have clearly improved. It is also quite clear, that strong implementation of the programme conditionality is absolutely essential and should be continued. That is all I can say at this point in time. One has to keep in mind that the initial structural weaknesses of the Portuguese economy were very serious. This implies a much more complex programme of adjustment, under which the Portuguese Government has achieved significant progress. I would also like to ask Vítor Constancio if he has anything to say about Portugal.

Constancio: You have said it all with regard to the progress of the adjustment, which is clear, in particular with regard to the external accounts which have gone from a big deficit to being in balance and even a small surplus, as is now foreseen. It was, of course, a very costly adjustment, but it was done. There has also been progress in the fiscal position of the country in terms of reducing the deficit and in terms of competitiveness indicators. All these components of the adjustment have been achieved and now all the international institutions are forecasting some growth for next year, which is the result of what has been achieved.

Question: You said that the decision has been shown to be fully justified – the November decision, including the interest rate cut. Is this an assessment that was shared by all Governing Council members today, as we know that there was some divergence of views last month? And my second question is: you said that the key question for further actions would be whether they are justified or not. Since negative deposit rate and also quantitative easing are seen as very extreme instruments, would you say that these instruments are only justified if there was a serious deflation threat for the euro area as a whole, or would they also be an option just to support the economy if growth is too low and inflation is low?

Draghi: On the first question, once we have taken a vote on a decision, we never take another vote to decide, say three weeks later, whether that decision was justified or not. So, we vote only once, basically. In fact, we rarely vote. Sometimes we do – like last time. But, I should say – and you should know because it was a public statement – that the disagreement was whether to cut interest rates then or later. It was not on substance, so much so that some of those who disagreed at the time later stated that it was fully justified. Going beyond Council members’ views and opinions, when I say it is fully justified I look at the facts: at the markets’ reaction, at the rates, at a list of things that I briefly mentioned before – bank bonds issuance, yields, the repositioning of the forward curve to where it was in May, and so on.

Your second question – which instrument would we deploy against which contingency – is actually a very hard question to answer, and we haven’t really reflected on that. We know we have a powerful artillery of different instruments still available. We do believe that our decision at the last Governing Council meeting – the monetary policy decision – was, as I’ve said, right. Subsequent events have shown that it was justified, that our forward guidance has been substantially successful in a context of inflation expectations which remain fully anchored, in a context of an inflation constellation where the non-food and energy components drift slightly higher, and in a context where we have to acknowledge that our monetary policy decisions are taking time to exert their inputs. So, that’s the state of play and it’s too early to speculate on such future courses of action.

Question: As you may be aware, the letter that your predecessor, Mr Trichet, sent to the Spanish government in the early days of August 2011 has just been published as part of the memoirs of former Prime Minister Zapatero. What is your opinion on the publication of a restricted document in a book with commercial purposes and, also, could you remind us why this document, in which an EU institution gives recommendations on fiscal and economic policy, had to remain in secret? And if I may, a quick follow-up question on your comments on the LTRO. Should a new one take place, how do you intend to control the use that the banks make of the money? You cannot mark the notes…

Draghi: Let me respond to the second question first. You’re absolutely right. There are two dimensions to decisions like this. The first is “when” it’s needed. I did not say anything about this being needed tomorrow. It was just sort of in abstract, regardless of “when”. The second dimension is its practicality, its capacity to actually achieve the targets for which it’s been designed. Now, work has been done on this front. But this is exactly one reason why…, and I remember discussing this with you a year ago or a year and a half ago, when you were asking the same question: “Why haven’t you linked this to actual credit?” And the thing is that, as we have seen in the UK, it’s already complex – in a one-country framework. In a 17 or 18-country framework it’s going to be even more complicated. As I said, work has been done on this, too. But we should not ignore the practical complications stemming, generally, from measures like these. It’s like when people say: “Ah, the ECB should buy assets”. I say: “Which assets?” But I don’t want to start a discussion on that … That’s another thing. You can like this in theory. In practice, you have to ask yourself what you mean. But, as I’ve said, lots of work, reflections – papers have been written on this. So, when the time comes we are going to be ready. If the time ever comes.

On the letter, I’d rather, frankly, not comment. These are really issues specific to a certain country and I just don’t want to comment.

Question: An opinion is expected of the ECB on the recent changes announced in Italy to the Bank of Italy’s shareholding structure. Could you tell us if you have this opinion and when it is going to be published and can you tell what it is? You have also mentioned numerous options. Several were already mentioned like negative deposit rates and some form of purchasing assets. Are you also considering stopping, or at least reducing, the amount of sterilisation that you do of the SMP purchase?

Draghi: On the first question, the ECB Opinion, as is the current practice, has been circulated to all the national central banks, in a written procedure and the national central banks are expected to send their comments. I do not know what the state of this written procedure is. The Opinion has not been adopted yet. That is the situation now.

On the sterilisation of SMP: we have marginally touched on this as well today. We have discussed this and there are two issues. One is the liquidity creation that would accompany such a measure. The other one is the awareness that this liquidity creation – or the liquidity absorption anyway – takes place in a context of fixed rate full allotment. The two tend to compensate each other. We are reflecting on this issue.

Question: Mr Draghi, in both your opening statement and in your comments today you placed a lot of weight on inflation expectations in the medium to longer term remaining anchored around the target, but in Japan those expectations moved a little bit late. They didn’t really tell us anything until it was too late for the central bank to do anything. Given that, how appropriate is it that you are placing so much faith in these inflation expectations in warranting not doing more now? And just a second question, if I may, you have mentioned in recent weeks that lower-than-target inflation in the periphery may be appropriate given that it is a corollary of more competiveness, but at the same time you said that inflation in the euro zone overall needs to be anchored around the target. How can you say that inflation that is a third below target over the monetary policy-relevant horizon is really a suitable anchor?

Draghi: On the first question, I think that the situation in the euro area is quite different from what it was in Japan in the 1990s and early 2000s. Let me give you a few reasons. The first is actually what we have just discussed. We have taken – if you look at what we have done in the last year, year and a half – we have taken decisive monetary policy measures of great significance at a very early stage, even when, as a matter of fact, inflation was not at the levels at which it is today. It was way higher and way closer to 2% and this did not happen in Japan. The second reason why – by the way, this is an interesting comparison which you can imagine we look at with great attention – but there is a second reason why this comparison is not actually there. We are in the process of doing the asset quality review. You are aware that the situation in Japan lasted much longer than it should have because the balance sheets of the banking system and the private sector were burdened, and had to be deleveraged and the action to induce this deleveraging lacked for many years. The review is expected to, produce this action. And as a matter of fact, this action has already started, and is actually underway right now. Much of it, well, some of it, is actually taking place even before the review is being implemented. That is the second reason. The third reason is that the situation of the private sector balance sheets is not at all comparable in the euro area. It is not at all comparable with what it was in Japan at that time. The fourth reason is that the countries in the euro area have made significant progress in addressing their structural weaknesses. Now, in some countries the progress toward structural reforms has been slower, in other countries faster, but you see that the situation today is completely different from what it was two years ago. And that’s the fourth difference between Japan in the 1990s and 2000s and us today. But there is a fifth reason. As a matter of fact, if you look at the inflation expectations in the euro area and the corresponding inflation rates you would see that in Japan the inflation expectations were dis-anchored quite significantly, and for a long period of time, which is not something we are seeing here.

As regards your question on inflation: Well, certainly, that is why we acted. And we acted because we think that the outlook, the medium-term outlook for inflation, is subdued and stays subdued for a long period of time and, as a consequence, it makes the adjustment, the relative price adjustment, across countries more difficult. There is absolutely no doubt that it is much easier to adjust if you have inflation of 2% than if you have an inflation of 0% because of the rigidity of prices and wages, the downward rigidity of nominal prices and wages. And that is why we acted and that is why we – as I said before –are very aware of the downside risk that a too low rate of inflation for a protracted period of time might have and that is why we stand ready to act.

Question: Among the broad range of instruments that the ECB has – the artillery which you referred to – my understanding is that there is also just as part of a discussion the possibility of proceeding to some kind of quantitative easing. So my question is, and I don’t want you to get into the details of this because I know it is not possible because it is just a discussion, but in case this would happen, would these asset purchases only focus on bank securities because the ECB already has in place a programme for government bonds, that is the OMT?

Draghi: I am sorry but I have to say what I said before. We have not identified any specific instrument in today’s discussion. As I said, the message is that we have instruments, they are there, there is a sizeable variety of instruments and we are ready and able to act, within our forward guidance framework.

Question: I have a question concerning the asset quality review with the specific aim of rebuilding confidence in the balance sheets of banks. I come back to the point already briefly touched on by a previous speaker. The move in Italy to revalue the shares of the Bank of Italy and, secondly, in Spain the recent decision by the finance ministry to allow the conversion of deferred tax assets into capital backed by a government guarantee in case the banks are not making enough losses so the deferred tax assets actually materialise. So, do you think these two moves, which are unrelated and two different cases and each of which must be considered on its own, are part of a certain pattern of creative accounting in the run-up to the balance sheet assessment? Do you agree with this or do you completely disagree?

Draghi: We will come to discuss these specific measures when we actually come to examine them. First of all, some of them, probably both of them, are not in place yet, so they are not laws. The Italian one is not a law at all, I do not know about the Spanish one. So, we will discuss them and their impact when they come into being, but let me make a more general point about the asset quality review. The asset quality review is useful if it is credible and to say it is credible means that it will shed light onto the banks’ balance sheets, so that the private sector will find it convenient and profitable to invest money in or lend money to the banking industry of the euro area. And banks will find it a feasible proposition to lend and borrow from each other. That is the ultimate test of credibility. It is quite clear that the more we trick around with concepts, the less the outcome of the test will be credible. So whatever happens, all these developments will be judged according to their own merits and substance. We will have to see what that is, but the general line is that the ECB and all the other parties that are working on this exercise want to achieve a fully transparent exercise. That is also the reason why – and someone else asked about this before – the communication with the private sector about this process will be continuous.

Question: The European Commission fined several banks yesterday. I wonder how concerned are you by the benchmark rate-rigging scandal for financial stability and the transmission of monetary policy?

Draghi: Well, this is really a matter for the Commission to answer, it is not a matter for us. The fines, the fraud, the criminal aspect of this are really a matter for the Commission. If we look at this from another angle, namely what all this does to the reference rate, I would say again that it is a matter for the Commission to elaborate a reference rate that could stand against all these negative developments and come out stronger with respect to these things. And the ECB is working together with the Commission. So we are not in the driver’s seat. We are certainly working with them because the reference rate is an important concept for a central bank.

Question: Mr Draghi, you may have seen today that US GDP growth was faster than expected and that it is bound to increase speculation that the tapering will come sooner than people had expected. I am wondering what consequences you might see for the euro area if, in fact, the Fed starts tapering sooner than people had expected and how concerned are you about that.

Draghi: Generally, we are not commenting on other central banks’ monetary policy actions. But in terms of consequences, I can say that what the facts show is that there were limited spillovers in June, July – May – when, all of a sudden, it looked as if this tapering could be happening sooner rather than later. But there were not extensive consequences on the bond markets and more generally on the financial markets of the euro area, while the consequences for emerging market countries were actually much more visible and significant. The second point is that precisely that episode may have injected an early repricing of assets, which could actually further protect the euro area from unwanted consequences.

Question: Just going back to the meeting that you have just had. It was not clear to me if anyone at all at that meeting was calling for either a cut or an increase in one of your three official rates. I wonder if you could answer that. And, secondly, as you go forward, if you do see the need for more easing on your main rates, are you now considering smaller steps? Because obviously if you take a quarter point cut from the current benchmark you would be at zero. Would you therefore consider smaller cuts in that or the deposit rate?

Draghi: Well I already answered the first question in the sense that there was basically no proposal to cut rates for the reasons that I have explained, that our decision last month was justified by facts and had produced exactly the desired outcomes. And given all the reasons I gave about the inflationary environment and the time needed for our monetary policy decisions to exert their final effects, there was no sense in having a discussion on another policy action today.

On the other question I would say that I have to answer in the same way I have answered several times. We have a full array of instruments, and I would rather use the word “array” instead of “artillery” because it comes across as militaristic language – that array of instruments, or “panoplia”, would that also be ok? – but we have not identified any one specifically today.

Question: I would just like to ask about the SSM. I understand that Danièle Nouy has been given approval from the Committee on Economic and Monetary Affairs today. That leaves the position of Vice-Chair, for which I understand the Executive Board would be nominating one of its members. Could you perhaps comment on the progress towards that and whether more than one member has expressed an interest in the job?

Draghi: I could certainly comment on that. We are reflecting on this. We also want to talk to Danièle Nouy and see what her views are. Certainly, our conviction is that the sooner the supervisory board is put in place, the better. Incidentally, we already have the benefit of the national authorities’ experience in supervision, because there is what is called a high-level group of supervisors. I chair these meetings and they really are very active in progressing with the SSM and working on the AQR. So there are two branches of action: one is the preparation for the SSM and the other is the preparation for the AQR and the stress tests. The national authorities are present there and I would like to take this opportunity to thank both them and the ECB staff, both of which have been wonderful in terms of the amount of work they have done so far. It is not an insignificant amount of work to do an AQR for more than 130 banks across 17 or 18 countries or to create ex novo an organisation, an institution which is going to supervise all the banks of these 17 or 18 countries in close cooperation, using national experiences.

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