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

Mario Draghi, President of the ECB,
Frankfurt am Main, 4 September 2014

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 Katainen.

Based on our regular economic and monetary analyses, the Governing Council decided today to lower the interest rate on the main refinancing operations of the Eurosystem by 10 basis points to 0.05% and the rate on the marginal lending facility by 10 basis points to 0.30%. The rate on the deposit facility was lowered by 10 basis points to -0.20%. In addition, the Governing Council decided to start purchasing non-financial private sector assets. The Eurosystem will purchase a broad portfolio of simple and transparent asset-backed securities (ABSs) with underlying assets consisting of claims against the euro area non-financial private sector under an ABS purchase programme (ABSPP). This reflects the role of the ABS market in facilitating new credit flows to the economy and follows the intensification of preparatory work on this matter, as decided by the Governing Council in June. In parallel, the Eurosystem will also purchase a broad portfolio of euro-denominated covered bonds issued by MFIs domiciled in the euro area under a new covered bond purchase programme (CBPP3). Interventions under these programmes will start in October 2014. The detailed modalities of these programmes will be announced after the Governing Council meeting of 2 October 2014. The newly decided measures, together with the targeted longer-term refinancing operations which will be conducted in two weeks, will have a sizeable impact on our balance sheet.

These decisions will add to the range of monetary policy measures taken over recent months. In particular, they will support our forward guidance on the key ECB interest rates and reflect the fact that there are significant and increasing differences in the monetary policy cycle between major advanced economies. They will further enhance the functioning of the monetary policy transmission mechanism and support the provision of credit to the broad economy. In our analysis, we took into account the overall subdued outlook for inflation, the weakening in the euro area’s growth momentum over the recent past and the continued subdued monetary and credit dynamics. Today’s decisions, together with the other measures in place, have been taken with a view to underpinning the firm anchoring of medium to long-term inflation expectations, in line with our aim of maintaining inflation rates below, but close to, 2%. As our measures work their way through to the economy they will contribute to a return of inflation rates to levels closer to 2%. Should it become necessary to further address risks of too prolonged a period of low inflation, the Governing Council is unanimous in its commitment to using additional unconventional instruments within its mandate.

Let me now explain our assessment in greater detail, starting with the economic analysis. Following four quarters of moderate expansion, euro area real GDP remained unchanged in the second quarter of this year compared with the previous quarter. While it partly reflected one-off factors, this outcome was weaker than expected. With regard to the third quarter, survey data available up to August indicate a loss in cyclical growth momentum, while remaining consistent with a modest expansion.

Domestic demand should be supported by the range of our monetary policy measures, the ongoing improvements in financial conditions, the progress made in fiscal consolidation and structural reforms, and lower energy prices supporting real disposable income. Furthermore, demand for exports should benefit from the global recovery. At the same time, the recovery is likely to continue to be dampened by high unemployment, sizeable unutilised capacity, continued negative MFI loan growth to the private sector, and the necessary balance sheet adjustments in the public and private sectors. Looking ahead, the key factors and assumptions shaping the outlook for growth need to be monitored closely.

These elements are reflected in the September 2014 ECB staff macroeconomic projections for the euro area, which foresee annual real GDP increasing by 0.9% in 2014, 1.6% in 2015 and 1.9% in 2016. Compared with the June 2014 Eurosystem staff macroeconomic projections, the projections for real GDP growth for 2014 and 2015 have been revised downwards and the projection for 2016 has been revised upwards.

The Governing Council sees the risks surrounding the economic outlook for the euro area on the downside. In particular, the loss in economic momentum may dampen private investment, and heightened geopolitical risks could have a further negative impact on business and consumer confidence. Another downside risk relates to insufficient structural reforms in euro area countries.

According to Eurostat’s flash estimate, euro area annual HICP inflation was 0.3% in August 2014, after 0.4% in July. This decline reflects primarily lower energy price inflation, while the other main components remained broadly unchanged in aggregate. Inflation rates have now remained low for a considerable period of time. As said, today’s decisions, together with the other measures in place, have been taken to underpin the firm anchoring of medium to long-term inflation expectations, in line with our aim of maintaining inflation rates below, but close to, 2%. On the basis of current information, annual HICP inflation is expected to remain at low levels over the coming months, before increasing gradually during 2015 and 2016.

The September 2014 ECB staff macroeconomic projections for the euro area foresee annual HICP inflation at 0.6% in 2014, 1.1% in 2015 and 1.4% in 2016. In comparison with the June 2014 Eurosystem staff macroeconomic projections, the projection for inflation for 2014 has been revised downwards. The projections for 2015 and 2016 have remained unchanged.

The Governing Council, taking into account the measures decided today, will continue to closely monitor the risks to the outlook for price developments over the medium term. In this context, we will focus in particular on the possible repercussions of dampened growth dynamics, geopolitical developments, exchange rate developments and the pass-through of our monetary policy measures.

Turning to the monetary analysis, data for July 2014 continue to point to subdued underlying growth in broad money (M3), with annual growth standing at 1.8% in July, compared with 1.6% in June. The growth of the narrow monetary aggregate M1 stood at 5.6% in July, up from 5.4% in June. The increase in the MFI net external asset position, reflecting in part the continued interest of international investors in euro area assets, remained an important factor supporting annual M3 growth.

The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) remained negative at -2.2% in July, unchanged compared with the previous month. However, net redemptions were again sizeable in July. Lending to non-financial corporations continues to reflect the lagged relationship with the business cycle, credit risk, credit supply factors and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) was 0.5% in July, broadly unchanged since the beginning of 2013.

Against the background of weak credit growth, the ECB is finalising the comprehensive assessment of banks’ balance sheets, which is of key importance to overcome credit supply constraints.

To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis led the Governing Council to decide on measures to provide further monetary policy accommodation and to support lending to the real economy.

With regard to structural reforms, important steps have been taken in several Member States, while in others such measures still need to be legislated for and implemented. These efforts now clearly need to gain momentum to achieve higher sustainable growth and employment in the euro area. Determined structural reforms in product and labour markets as well as action to improve the business environment are warranted. As regards fiscal policies, comprehensive fiscal consolidation in recent years has contributed to reducing budgetary imbalances. Euro area countries should not unravel the progress made with fiscal consolidation and should proceed in line with the Stability and Growth Pact. The Pact acts as an anchor for confidence, and the existing flexibility within the rules allows the budgetary costs of major structural reforms to be addressed and demand to be supported. There is also leeway to achieve a more growth-friendly composition of fiscal policies. A full and consistent implementation of the euro area’s existing fiscal and macroeconomic surveillance framework is key to bringing down high public debt ratios, to raising potential growth and to increasing the euro area’s resilience to shocks.

We are now at your disposal for questions.

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Question: My first question is, was this a unanimous decision on the interest rates and on the ABS and covered bond purchase programme? And my second question is about your previous comments about, for all intents and purposes, being at the lower bound on interest rates. You’ve cut interest rates further. Is there a risk that this undermines a bit the reliability of your forward guidance and your communications on the policy outlook to the financial markets and to the public?

Draghi: The answer to the first question is no. It was not unanimous. And to the second question: no there isn’t such a risk, because we announced about the interest rates that they would be for all practical purposes at the lower bound, but technical adjustments could be possible, and that’s what we did. And now we are at the lower bound, where technical adjustments are not going to be possible any longer.

Question: Mr Draghi, you said that the new measures and the TLTROs will have a sizeable impact on your balance sheet. Could you give us more insight into how much you expect the impact to be for the new measures? And my second question is, following your speech in Jackson Hole, did you discuss QE today?

Draghi: On the first question - you know, this is quite a complex package of measures. You have the TLTROs which are going to unfold over several operations over two years initially, then two more years. So that’s one thing. Then you have the ABS, which is in a sense a very novel programme. Then we have the starting again of a covered bond purchase programme. As you all know, it’s not a new thing, but the purposes of this programme are very different from the previous programmes.

So all this makes a precise estimate of the impact that these transactions will have on our balance sheet very complicated, especially at the stage when none of these operations have as yet been undertaken. So we may be more precise especially once the TLTROs, at least the first two TLTROs, have taken place.

The aim here, however, is twofold. The aim is to increase the measures that produce credit easing for the banking industry and banking sector, which as you know represents more than 80% of total intermediation, credit intermediation, in the euro area. The second aim is to steer, significantly steer, the size of our balance sheet towards the dimensions it used to have at the beginning of 2012.

Yes, it was discussed. QE was discussed. Some of our Governing Council members were in favour of doing more than I have just presented, and some were in favour of doing less. So our proposal strikes the middle of the road, but to answer your question, yes it was discussed. A broad asset purchase programme was discussed, and some Governors made clear that they would like to do more.

Question: I wonder if maybe you could clarify for us what your definition of quantitative easing is. I gather from the answer to the last question, the size of this programme will not yet qualify as quantitative easing, and maybe you can clarify at what point we should start calling it quantitative easing.

And the second question is, I’ve seen various estimates of the size of the asset-backed securities market in the eurozone. I’d be interested in what your estimate is and whether that puts any kind of ceiling on what you can do with the programme you’ve just spoken about.

Draghi: On the first thing, the definition of QE is not really related to its size, but rather to its modalities. So QE is an outright purchase of assets. To give an example: rather than accepting these assets as collateral for lending, the ECB would outright purchase these assets. That’s QE. It would inject money into the system. Now, QE can be private sector asset-based, or also sovereign-sector, public sector asset-based, or both. The components of today’s measures are predominantly oriented to credit easing. However, it’s quite clear that we would buy outright ABS, the senior tranches, and the mezzanine tranches only if there is a guarantee. In other words, very much like what the Fed did a few years ago. So there is also this component.

Let me also add, to answer your question about the size of the ABS: this is very difficult. We have gone through several figures. Some of them even leaked out, and it’s pointless I think to discuss. We would have loved to give you a figure, obviously. For communication purposes, it’s much better to be clear, but at this stage especially, it’s very difficult to assess the size of this.

Let me also add one thing, because the ABS may sound more, I would say novel, than they are in the ECB policy-making, and indeed, the modality is novel, because we would do outright purchases of ABS, but the ABS have been given as collateral for borrowing from the ECB for at least ten years, so the ECB knows very well how to price and how to treat the ABS that’s accepted, especially since we have, - and this is in a sense another dimension that makes any precise quantification difficult at this point in time - we have narrowly defined our outright purchase programme to simple and transparent ABS. We have gone through this several times, and that’s where in a sense the credit easing component comes back into place, because we want to make sure that these ABS are being used to extend credit to the real economy.

Question: For my first question, you noted that the decision today was not unanimous. Could you tell us a little more about the scale and the nature of the dissent, and you noted just in your previous answer that the ECB already has a lot of expertise when it comes to the handling of asset-backed securities because they’re accepted as collateral. Given that, what is the hiring of BlackRock adding to the process of devising the programme?

Draghi: On the scale of the dissent, I could say that there was a comfortable majority in favour of doing the programme, and now on the content of the discussion, I’ve given some hints before. On BlackRock: one thing is to accept the ABS as collateral, another thing is to design a programme of outright purchases, and that’s where BlackRock Solutions would actually be helpful in doing it. As had been announced some time ago, they’ve been hired by the ECB through a competitive tender within the existing rules. They’ve been tendered out in the form of a competitive negotiated procedure without publication of a notice. This procedure is foreseen in the ECB Rules of Procurement, Article 6.1, in line with the European Public Procurement Directive. It’s common practice in EU member states. So their contribution would be to advise on developing a programme to purchase ABS. I could go on with the tendering procedure if you are interested. The ECB has invited a number of appropriate consulting firms to take part in the tender etc, but just be assured that the rules have been followed.

Question: My first question is more a comprehension question on this covered bonds and ABS programme to be launched. What about the sterilisation of the purchase of these assets? Is it something that is in mind, or is it not relevant, because we heard about sterilisation of purchases of other kinds of assets, like SMP for example. So it is not a question, but maybe you can clarify this.

And the second one, after having announced a bunch of measures in July, three months ago, you’re acting now, but in a surprising way with regard to interest rates, and so maybe the impression could be that the ECB is acting in a kind of hasty manner. So can you maybe comment on this or say, why these steps now and not the whole thing three months ago?

Draghi: This is a very natural question to ask, and one should ask, what has changed since then? What happened in August is that we’ve seen a worsening of the medium-term inflation outlook. We have seen a downward movement in all indicators of inflation expectations across all maturities. As I had a chance to say in Jackson Hole, one of the most used measures, the five year in five years inflation, had dropped by something like, I remember 18 basis points, just below 2%. So after the speech, some of these measures backed up. Some of them went back to their original level, but most of them did not.

Add to this that I would say most, if not all, the data that we got in August, both hard and soft, on GDP and inflation, as I said in the introductory statement, showed that the recovery was losing momentum. The growth recovery was losing momentum. So the Governing Council basically decided to a great extent to strengthen the measures, complete and strengthen the measures decided in June. In this sense, the ABS outright purchases could be viewed as a measure that strengthens the TLTRO. So that’s the reason essentially. And again, the change in interest rate is also - I would say that the main reason is to make sure that there are no more misunderstandings about whether we have reached the lower bound. Now we are at the lower bound. So I think that’s the answer to your point, which is a very legitimate question really.

Question: I have two questions. The first is on the purchase programmes that you announced. Do you have more details of what kind of ABS you are planning to buy? Mortgage, residential mortgage, just to SMEs?

And on the rate cut, could you give a bit more light on what you expect to achieve with a rate cut? It will make the TLTROs more attractive? This is what I’m thinking, but this is the question I’m asking you.

Draghi: The purchase of ABS will involve both newly created and existing ABS and would also include the real estate, the RMBS, real estate ABS. It would also include a fairly wide range of ABS containing loans to the real economy.

The other question is about the interest rate. Well, it’s a convention, a standard monetary policy decision, and one expects effects according to the usual line of thinking, but in this case it clearly signals to the banks that are going to participate in the TLTRO that they should not expect any further lowering in interest rate, so they should not hesitate to participate in the TLTRO because of this reason, because they could wait for a lower interest rate in the future.

Question: I have two questions. Considering the inflation expectation in your staff projections, which have not moved for 2015 and 2016. Why have they not moved if you’re seeing a clear trend of lower inflation in the future?

And my second question would be on your calls for using the fiscal leeway we are having, and how are the responses from governments? Is it true that there was some frustration in certain governments, or have you been misinterpreted?

Draghi: On the first question, the staff’s projections foresee a return of inflation and an upward trend essentially because of the recovery, of the exchange rate, of the effects of our monetary policy, of better prospects for global demand. So by and large, these are the underlying assumptions, and in some cases, I do think they also foresee an increase in the price of food. So there are assumptions. The usual assumptions are behind this. The downward trend that we are witnessing this year is viewed as a temporary deviation from a baseline which will see inflation expectations going back toward 2%, but not at 2%, in 2016.

Yes, you are absolutely right. There have been many interpretations on what I said, but in fact, I thought I was exceedingly clear in what I said in Jackson Hole. Let me just try to sort of recap, without going through - actually, I expected a question like that, so I thought I should read through the speech again, but I’ll save you from that.

The idea is that there are, I would say, three instruments for revamping growth. Structural reforms, fiscal policy and monetary policy. During that presentation, I started with monetary policy, I went through fiscal policy, but then I concluded that there is no fiscal or monetary stimulus that will produce any effect without ambitious and important, strong, structural reforms. So in a sense, the key point is to do structural reforms.

On the fiscal policy, I said four things. The first is that, and I repeated this in the Introductory Statement today, the Stability and Growth Pact is our anchor of confidence. The rules should not be broken. Second, within the existing rules, there is some flexibility, but within the rules, and also, I would add, that these discussions on flexibility should not be viewed or should not be such that they would undermine the essence of the Stability and Growth Pact. Within the Stability and Growth Pact, one could do things that are growth-friendly and also would contribute to budget consolidation, and I gave an example of a balanced budget tax cut. Reducing taxes that are especially distortionary, where the short-term multipliers could be higher, and cutting expenditure in the most unproductive parts, so mostly, actually not mostly, entirely, current government expenditure.

I also said, and that’s the third part, that we should have a discussion on the fiscal stance of the overall euro area. And finally, I made a point about - which actually was a reference to a programme that had been launched by the new president of the Commission, Mr Juncker - about a very large public investment or private investment programme in the Union, and he gave a figure of €300 billion. This is what I said.

Let me add one thing from a confidence strengthening viewpoint. Because in many parts of the euro area, there are several reasons why growth is not coming back, but one of them is actually that there is lack of confidence. There is lack of confidence in the future, lack of confidence in the prospects, in economic prospects, of these countries. From a confidence viewpoint, it would be much better if we were to have first a very serious discussion on the structural reforms and then a discussion about flexibility. That’s the idea, that’s a suggestion, but that’s what I said in Jackson Hole, so if there have been over- or under-interpretations, it’s not my responsibility. I think the message came out quite clearly.

Question: You said several times, when you talked about these ABS purchase programmes in the past several months, that changes in regulation were needed. Now you’re going ahead with the programme. Does that mean that you expect these regulatory changes to be implemented quite soon, or that you thought that it was necessary to go ahead regardless of these changes?

And my other question is about the fiscal part of your speech at Jackson Hole and the contacts you had with several leaders before and after your speech. Did you get any reassurances from governments that they are ready to do what in a sense you asked them to do, that is structural reforms and the fiscal adjustments, which will include, when you talk about the fiscal stance of the overall area, if I understand it correctly, also some action from surplus countries, or countries that have already done their consolidation?

Draghi: On the first part, we decided to go ahead with this programme. We certainly don’t want to set a calendar for regulators that are independent. There is a need, some regulation has changed, by the way, already, for the better, in the sense of treating ABS of a certain type better and in a less discriminatory way if compared with similar instruments like covered bonds, but these changes are not enough. And so we decided to go ahead, but certainly, some of these changes will be needed to rebuild a market which could be, especially in Europe, an important channel of credit intermediation. I’m saying especially in Europe, because of course we are completely focused on the bank lending channel, and this would on the one hand be sidelining the traditional credit channel, but on the other, it could go back to what it was before the crisis.

You know, securitisation has a very bad name, but because of what was being securitised, and there isn’t necessarily only bad securitisation. There could be good securitisation, depending on what people trade, how much risk they retain and so on, and that’s what we and the Bank of England are aiming at, rebuilding this market, but for doing that, we need not only the presence of the central banks, but also the regulatory changes that would be justified.

On the second point, the answer to that is: no not really. No, I'm not going to talk to leaders to ask for reassurances about what they plan to do. That's not exactly the institutional dialogue that is there.

The point I was trying to make in Jackson Hole is the following. One cannot really talk about a ‘bargain’ as I've read in some parts, a ‘grand bargain’. The point from a central banker’s viewpoint is that it's very difficult for us to reach the objective of an inflation rate which is below, but close to, 2% only based on monetary policy. You need growth. You need to lower unemployment. For doing that you need other things, and that's what I said. You need fiscal policy. You need structural reforms first and foremost. So in this sense there isn’t any ‘grand bargain’ here, just that each of us have to do their own jobs.

Question: Two questions, just firstly on the theme of the more growth-friendly measures and some leeway. You met President Francois Hollande this week in France. Are there any indications from him that France is going to embark on more growth-friendly measures? You mentioned in your introductory remarks that some member states have not implemented structural reforms. Is France one of them?

And secondly, you’re due to meet the Irish finance minister next Tuesday. Ireland wants to repay the IMF portion of its IMF loan from its bailout early. Are the European lenders comfortable with taking on the risk, the entire risk, of Ireland repaying its loans?

Draghi: Well we take note of this. We will examine it in the Governing Council. And we'll certainly monitor very, very closely what is being done with the sale of assets so that the, what we call, monetary financing concerns are being properly and significantly addressed. That's the response to the second question.

On the first question: the main content of the meeting with President Hollande was a review of the economic situation in the euro area. And so from this viewpoint it would be difficult for me to comment on the prospects for structural reforms in that country. It's quite clear to everybody that the desire to undertake these reforms is there, and we took note of that and we welcome that.

Question: I have a question about my country, Lithuania. Lithuania will join the eurozone next year, and today the economy meets the Maastricht criteria very well, but next year there are some risks that Lithuania could spend more than it actually can because of Russia sanctions, because of bigger budgets on defence and so on. What ways do you see for Lithuania to protect itself from spending too much and increasing their deficit?

And the second part is about inflation. People already are worried that prices are rising. What do you see inflation will be next year in Lithuania, compared with the eurozone average?

Draghi: First of all let me say how much the Governing Council welcomes Lithuania in the euro area. And the Governing Council and ECB are aware of the extraordinary progress achieved by the economic policy in Lithuania over the recent years. We've said this on all possible occasions, because it's true.

It's also true that in the years previous to the entrance -- in the last four or five years, there have been signs of instability in prices and in economic policy. So in this sense it's very important that the progress that has been achieved by Lithuania before entering the euro will be maintained. And so Lithuania would be a partner, like all the others, will be subject to the same rules as the others. So that's very important because – I think I did say this in the Introductory Statement – the progress that Lithuania has achieved should not be unravelled.

Question: Two questions for President Draghi. First, it's about the structural reform that you are suggesting. Most people could say to you that they have social costs, and some heads of state and government would also say some electoral costs. So wouldn’t it be suitable maybe to have a more European supervision on the reform part, as we do also on fiscal targets, according to you.

And then I have a second question. Before meeting President Hollande this summer you also met with the Italian prime minister. As you know, Italy is a country under deflation at this moment with a difficult growth situation, and the government is trying to undertake also an important path of reform. So can I ask a little bit of the content of your meeting with Mr Renzi as well, and if you also touched on the reform that he has to do in the future.

Draghi: The answer to the second question is easy. Our conversation remains confidential, so I have nothing to add to that. On the first point it's actually an important question. Structural reforms have a cost, and many costs as a matter of fact. But isn’t lack of growth a cost in itself? And that's what we've been seeing now. We've seen high unemployment, in some countries the highest in history, low growth for many years, a level of growth and production which is, in some countries, distant from what it was in 2007. In some countries the real wages of new entrants in the labour market are at the levels seen at the end of the 80s, previous century 80s. So isn’t this a cost too? I think that's the first part of the answer.

The second part is as a matter of fact kind of touching a chord that I touched upon in the past, saying: wouldn’t it be better to carry this, to have this area of structural reforms under the same sort of, similar - it's very different of course - but under a similar sort of framework we have for the budgetary discipline. And this has several advantages. First of all, I didn't want to imply that countries should lose sovereignty, but they should share sovereignty, very much like they did with monetary policy. Previous to having the euro, many central banks, perhaps all of them with the exception of one, had lost completely national sovereignty. The creation of the ECB and the euro gave a framework where all these countries could actually share sovereignty in crafting the monetary policy of the euro area. And in a sense it's very much the same thing with the process that we are discussing.

So it's not a loss in national sovereignty, which doesn't exist to begin with, or is very limited now, but it's actually a sharing together of common rules. And this would have several, in my view, benefits: first of all a political process that is perhaps easier than it would be if only at national level. But also, second, to have common rules would also mean to have one market which would in a sense increase the opportunities, for example for workers mobility to go and choose the place where to go and work, and so on. I think one can construct many examples of why this sharing of sovereignty could improve the prospects.

Question: Mr Draghi, two questions if I may. Firstly, as we sit today would you describe inflation expectations as anchored? And secondly, could you address what appears to be an apparent contradiction in the sense that you've said you have unanimity amongst the Governing Council for the use of non-standard measures and yet today you had no unanimity. Could you address that please?

Draghi: The inflation expectations we've seen, they are still anchored. But we've seen the downside risk increasing of late, and that explains why we have decided to strengthen the measures decided in June and complement these measures with others.

The second point is that unanimity and agreement is not a blank cheque, as in “No matter what we are going to do, we are going to be unanimous”. We are unanimous in the intent, but when the time comes to decide exactly what measures we should undertake there could be differences of view. So I don't think it's contradictory really.

Question: First one is on the ABS purchase programme. If I understood correctly, you said that real estate ABS will be included. I wonder why that is, given the fact that loans to households for house purchases have been excluded from the targeted LTROs.

And the second question is, to be honest I don't understand why you call the lowering of the interest rate only a technical adjustment. I don't think that you called a similar move in June a technical adjustment.

Draghi: On the first point, you are absolutely right to raise this point. There is an apparent contradiction here, but in facts it's not the case. What we will do when buying our ABSs will actually free space in the sellers’ balance sheet. The sellers may well not be banks only by the way; they could be also institutional investors. We free space and then it's not at all to be taken for granted that the seller will use this money to re-invest in real estate. The seller will use this money according to his or her business decisions at that time. That's why there isn’t a contradiction between our decision with the TLTRO not to finance new investments in real estate, new lending in real estate. So that's how we can explain it.

Now, I define a technical adjustment. Really, the reason why I use that is that, for all practical purposes, we were already at the lower bottom. So people wouldn’t really expect any big change in interest rate. But you are right. Perhaps my definition is unduly limiting the movement that we had.

Question: I have two questions. The first one would the stronger political action, or is the stronger political action and the kind you have stated to Jackson Hole and again today in form of structural reforms and growth programs a sine qua non for QE. And my second question is do rates at new record lows and LTROs not make ABS even less attractive?

Draghi: Okay, on the first question, you know the answer isn’t easy. First, there is no ‘bargain’ here. There is no negotiation going on. This would not be institutionally correct. We do monetary policy and others do other policies.

Second: Is our monetary stimulus going to be effective without structural reforms? Last time I gave an example: we can provide as much monetary stimulus as we want, as much availability of credit as we want. But if the person who has planned to use this credit for a new business has to wait eight months before he or she can open this new business, and then once he does it she has to pay lots of taxes, this person will not apply for credit. So the presence of structural reforms, the enactment of such reforms, is important for the effectiveness of monetary policy. And, by the way, also for fiscal - for some fiscal policies for sure - especially for tax cuts.

Third point, we have a mandate and the mandate is to keep inflation in the medium term below, but close to, 2%. Inflation, headline inflation, has gone from the end of -- if we look at the end of 2011, it was 3%. Now it’s 0.3%. Core inflation, excluding food and energy, was 1.7% in July 2012. Now it's 0.9%. So we had to comply with this mandate. That's our duty.

Now the second question: certainly the ABS programme starts at a time when the business cycle is very moderate, to say the least, and rates are very low. In other words as a funding channel the ABS would become more and more attractive when rates are going to be higher.

On the TLTROs: not really, I don't see the two programmes cannibalising each other, but rather complementing because the purchase of ABS would free space for the banks’ balance sheets for a greater participation in TLTRO's and in a variety of ways. I don't see exactly the opposition but it could be here and there, but prima facie the two things seem to go together.

Question: Mr Draghi, isn't there a risk that with the ECB emphasising so much the risk of low inflation that this itself could trigger a de-anchoring of expectations?

Draghi: Well, you see, this question is actually a question we also asked ourselves. But the answer to this question is: would the truth be a risk? In other words, do we really think that telling people things other than the truth would affect their behaviour? And the answer is no. We think that we ought to state things as they are. We don't see deflation. We have seen, as a matter of fact, low inflation for a long time. As I’ve said several times, the longer the period of low inflation the higher the risks of de-anchoring.

There is also another aspect here. The great part of the decline in inflation that I mentioned before, from 3% at the end of 2011 to now 0.3%, - the greatest part - is due to declining energy, food prices in the first part, and appreciation of the exchange rate in the second part. Then we asked ourselves the question, clearly there had been several forecast errors in this. Were these forecast errors based on errors made in assessing the impact of energy prices and food prices? And the answer is by and large yes, for quite a period of time.

But of late, the forecast errors still depend on food and energy errors, but also depend on other factors. And amongst these factors the economic slack and unemployment are playing an increasing role, a more significant role. So in this sense the risks that we want to react to now do depend on factors that are not exogenous to the euro area economy. And in this sense it's quite important that we state things as they are.

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