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

Mario Draghi, President of the ECB,
Frankfurt am Main, 5 September 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.

Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. Incoming information and analysis have further underpinned our previous assessment. Underlying price pressures in the euro area are expected to remain subdued over the medium term. In keeping with this picture, monetary and, in particular, credit 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, real GDP growth in the second quarter was positive, after six quarters of negative output growth, and confidence indicators up to August confirm the expected gradual improvement in economic activity from low levels. Our monetary policy stance continues to be geared towards maintaining the degree of monetary accommodation warranted by the outlook for price stability and promoting stable money market conditions. It thereby provides support to a gradual recovery in economic activity. Looking ahead, our monetary policy stance will remain accommodative for as long as necessary, in line with the forward guidance provided in July. The Governing Council confirms that it expects 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 unchanged overall subdued outlook for inflation extending into the medium term, given the broad-based weakness in the economy and subdued monetary dynamics. In the period ahead, we will monitor all incoming information on economic and monetary developments and assess any impact on the medium-term outlook for price stability. With regard to money market conditions, these have also been influenced by a gradual reduction in excess liquidity. Repayments of funds taken up in the context of the three-year longer-term refinancing operations reflect improvements in financial market confidence, some reduction in financial market fragmentation and the ongoing deleveraging by euro area banks. We will remain particularly attentive to the implications that these developments may have for the stance of monetary policy.

Let me now explain our assessment in greater detail, starting with the economic analysis. Following six quarters of negative output growth, euro area real GDP rose, quarter on quarter, by 0.3% in the second quarter of 2013. This increase is partly explained by transitory effects related to weather conditions in the first half of this year. Since then, survey-based confidence indicators up to August have improved further from low levels, overall confirming our previous expectations of a gradual recovery in economic activity. Looking ahead to the remainder of the year and to 2014, in line with our baseline scenario, output is expected to recover at a slow pace, in particular owing to a gradual improvement in domestic demand supported by the accommodative monetary policy stance. Euro area economic activity should, in addition, benefit from a gradual strengthening of external demand for exports. Furthermore, the overall improvements in financial markets seen since last summer appear to be gradually working their way through to the real economy, as should the progress made in fiscal consolidation. In addition, real incomes have benefited recently from generally lower inflation. This being said, unemployment in the euro area remains high, and the necessary balance sheet adjustments in the public and private sectors will continue to weigh on economic activity.

This assessment is also reflected in the September 2013 ECB staff macroeconomic projections for the euro area, which foresee annual real GDP declining by 0.4% in 2013 and increasing by 1.0% in 2014. Compared with the June 2013 Eurosystem staff macroeconomic projections, the projection for 2013 has been revised upwards by 0.2 percentage point, largely reflecting incoming data. For 2014 there has been a downward revision of 0.1 percentage point.

The risks surrounding the economic outlook for the euro area continue to be on the downside. Recent 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 in the context of renewed geopolitical tensions, weaker than expected global demand and slow or insufficient implementation of structural reforms in euro area countries.

According to Eurostat’s flash estimate, as expected, euro area annual HICP inflation was 1.3% in August 2013, down from 1.6% in June and July. On the basis of current assumptions for energy and exchange rate developments, annual inflation rates are expected to remain low in the coming months, owing in particular to energy price developments. Taking the appropriate medium-term perspective, underlying price pressures are expected to remain subdued, reflecting the broad-based weakness in aggregate demand and the modest pace of the recovery. Medium to long-term inflation expectations continue to be firmly anchored in line with price stability.

This assessment is also reflected in the September 2013 ECB staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 1.5% in 2013 and 1.3% in 2014. In comparison with the June 2013 Eurosystem staff macroeconomic projections, the projection for inflation for 2013 has been revised upwards by 0.1 percentage point, while the projection for 2014 remains unchanged.

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

Turning to the monetary analysis, data for July confirm that underlying broad money (M3) and, in particular, credit growth remained subdued. Annual growth in M3 decreased further in July to 2.2%, from 2.4% in June. Annual growth in M1 remained strong but decreased to 7.1% in July, from 7.5% in June. M3 growth continued to be mainly supported by net capital inflows into the euro area, while the annual rate of change of loans to the private sector weakened further. The annual growth rate of loans to households (adjusted for loan sales and securitisation) remained at 0.3% in July, broadly unchanged since the turn of the year. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) was -2.8% in July, compared with -2.3% in June. Weak loan dynamics continue to reflect primarily the current stage of the business cycle, heightened 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 and, in particular, in strengthening the domestic deposit base in a number of stressed countries. 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. Further decisive steps to establish a banking union will help to accomplish this objective.

To sum up, 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.

In order to further reduce imbalances and to foster competitiveness, growth and job creation, euro area countries need to continue with their reform agenda. As regards fiscal policies, governments should not unravel their efforts to reduce deficits and put debt ratios on a downward path. The composition of fiscal consolidation should be geared towards growth-friendly measures which have a medium-term perspective and combine improving the quality and efficiency of public services with minimising distortionary effects of taxation. In terms of economic policies, product market reforms to increase competitiveness will facilitate the creation of new businesses, support the tradable goods sector and foster job creation, while high unemployment rates require decisive structural reforms to reduce rigidities in labour markets and to increase labour demand.

I am now at your disposal for questions.

* * *

Question: You mentioned that if excess liquidity declines much further, you’d be particularly attentive to developments in that regard. Could you help us by perhaps indicating at what point numerically excess liquidity becomes a concern to you and what then you would do about that?

And my second question is about the renewed tensions in the Middle East: if it transpired that there was an oil price spike, which has happened in the past, of course, does that endanger your forward guidance outlook or would an oil price spike be something you would be inclined to look through?

Draghi: You are absolutely right to have focused on that sentence “particularly attentive…”. Right now, we view the current excess liquidity as adequate, but we stand ready to act. Now, we have got to be aware that excess liquidity depends on two factors. The less fragmentation there is, the less is the excess liquidity. The second factor is a reaction to the excess liquidity and to the demand, namely through LTROs. So now we are down from €800 billion to €250 billion in terms of excess liquidity, and that is all in all good news, because it means that fragmentation has been receding. Now, when we come to the relation between the excess liquidity and the EONIA rates – which is what you are really asking – we have to consider that this relation is unstable, in the sense that there isn’t any precise figure. I remember some time ago I mentioned a figure of €200 billion as the threshold, but in fact it is really context-dependent. It depends on the context; it depends on the degree of fragmentation that we have. The ECB’s Monthly Bulletin speaks of a figure between €200 billion and €100 billion, but in general the threshold depends on the state of fragmentation. The other note of caution that I would sound is that one should not extrapolate too much from the past repayment pattern of LTROs. As you see from the figures, it has been quite significant for some time, and now it is basically constant. It really depends on who is repaying the LTRO, what is the state of their funding conditions, what is the state of their profitability, what is their general situation. So, I wouldn’t extrapolate too much from this repayment pattern, saying that in a month’s time this figure of €250 billion would go down to €200 billion, or whatever. Second, I would say that there isn’t any stable relation between the figure, the threshold and the rates. In any event, we would – as I said – stand ready to take appropriate action as needed. Obviously – I already said this several times – we have the fixed rate full allotment policy in place until at least July 2014 and for as long as needed.

On the second question: we will have to see, really. In general, as you know, our reference is HICP inflation. We have to see whether this would alter our medium-term forecast for inflation. As I mentioned before, risks to inflation are broadly balanced and one of the risks is precisely shocks in commodity prices. We will have to assess this, but the rate at which we look is headline inflation.

Question: My first question is whether have you discussed a rate cut today and my second question is on market interest rates. You have raised concerns about the level of the market interest rates in July and I just wonder whether you feel comfortable with the level right now?

Draghi: On the question of an interest rate cut, there was a discussion like we do all the time. We do discuss the state of our monetary policy stance, each point in time and we discuss interest rates and other monetary policy instruments. Some governors of course observed that improvements in the economy would not justify this discussion. But several other governors observed that the recovery is still “too green” if you look at it: slack is still wide, weak credit, weak monetary aggregates, inflation is subdued in the medium-term, unemployment is still high. It was “too green” to exclude this discussion and if money market developments – and here I am answering to the second question really – if money market developments were to be judged unwarranted in their impact on our assessment of medium-term inflation then such an instrument should be considered.

Question: Just on that second answer you gave, last month you said that the rate hike expectations embedded in the money markets were unwarranted. Is that still your assessment and if it is, then why didn’t you cut rates today?

And my second question more broadly is; is there a risk that the ECB is trying to fine-tune the markets too much? Is there anything wrong, given the context of the eurozone and the global economy for investors to say “a couple of years down the line, there might be a single rate hike from crisis-low, near- zero levels”?

Draghi: Interest rates move for a variety of reasons. Some of them have to do with the news related to the improvements in the economy. In this case, the forward guidance we have expressed is just geared to make sure to reach two objectives. The first is to reduce the volatility within the corridor, which we have succeeded [in doing]. The second objective is to make sure that this news relative to the improvements in the economy do not cause overreaction in the market interest rates. And on that ground we had been moderately successful. And I would refer for an analysis and a comparison of different forward guidance concepts to a very recent and very interesting paper by the Bank for International Settlements.

Then there is another set of news that comes that has nothing to do with the euro fundamentals. And it may come from all over, in which case the forward guidance is meant to make sure that you want to look through this news to make sure that their impact on the medium-term assessment of inflation is contained

Question: Europe is picking up but the Netherlands is still in recession and the Dutch people think that is because of austerity measures. What do you think is the main reason that the Dutch economy is lagging behind?

My second question would be that there are new austerity measures coming up, 6 billion. One third will be tax increases. Do you think that the Netherlands is on the right track to recovery?

And I know I’m stretching it a bit, but I have third question. The Dutch government has decided not to privatise ABN Amro for another year, two of our four big banks are nationalised. I was wondering in general what your vision is on state ownership of a bank. What does that do to the competitiveness of the sector?

Graeff: Before we answer, we have a rule of two questions. So would you please pick the two most important ones?

Journalist: The first two.

Draghi: I would say that the Netherlands is undergoing a protracted domestic demand-driven recession and you know that the household sector is heavily indebted. There are financial sector challenges, declining real estate prices and all this weighs on domestic demand. So in this environment, deleveraging by households and by banks is natural. However, the recent data show a decelerating pace of the contraction with some signs of recovery in business investments and some stabilisation of exports. So there are also positive signals coming from the latest survey. Industrial confidence has improved in recent months, manufacturing PMI has climbed into positive growth territory. So I would expect a gradual pick-up of the economy. However, the medium-term outlook remains subdued, as with other members of the euro area.

Now, what are the most important reforms the Dutch government ought to do? It is not up to me really, it is up to the Dutch government to decide on the importance and urgency of reforms. In the context of the European semester, the Council has adopted country-specific recommendations which we fully support. And these recommendations concern a correction of the excessive deficit by 2014 and the implementation of further reforms in the housing market, in the pension system, the health and long-term care sector and the labour market.

Question: My first question is on the Single Supervisory Mechanism for banks. I would like you, Mr President, to tell us about the recent developments of the on-going discussion with the European Parliament on the SSM.

And second, about measures regarding banks. Again, there were some measures that were announced in July, for instance to ease the ABS haircut and raise it on retained covered bonds – but there were some legal hurdles to be crossed in this regard – and other measures regarding mezzanine credit for small and medium enterprises. Can you give us a flavour of what the state of play is as regards these issues?

Draghi: On the SSM our discussions with the European Parliament progressed considerably and we should have some positive news in the coming days. In addition to this, the preparation for the creation of the SSM is continuing and it is going well. As I have remarked on other occasions, there is a feeling at all the national supervisors that there is a strong, collaborative and cooperative stance. So, the working atmosphere is actually very good. There will be a first full communication on the assets – also called the “asset quality review” – which in fact is a risk assessment, a balance sheet assessment, by mid-October. That is one of the most important communications, especially for the banking system, which is going to be recipient of the SSM action. It will be highly welcome as it will set out how things will be done in the coming months.

On the other front, the ECB continues to work with the EIB and with the Commission in an advisory role and we will report on this and we will see what room there is for the ECB to act on this front once the work has been completed.

Question: Looking forwards, is there a deadline like year-end?

Draghi: Certainly before year-end. But we have to keep in mind: one thing is the design of what can come out of this effort; another thing is the overcoming of the regulatory hurdles which make the use of ABS quite difficult at the present time.

Question: Mr Draghi, but have the exact criteria for the balance sheet assessment already been defined by the Governing Council and, if so, what is the outcome?

Draghi: As I’ve said, we are going to have a full communication in mid-October. So, for the time being, I can only tell you that there are many people who are working on this – all the 17 national supervisors and their teams and the ECB are working on this. There isn’t anything precise that I can report at this stage.

Question: Mr Draghi, a follow-up to the question on banking union. Yesterday, Mr Asmussen said very explicitly that if a bank should be resolved, this should be decided by the ECB and implicitly not by the European Commission. I wonder if you agree with this position, which is a very clear position?

And my second question is on Greece. There has been a discussion, especially in Germany, about an eventual third package for after the elections. I wonder if the ECB is of the same opinion, that Greece will need help again?

Draghi: On the first point, I think there has been a misunderstanding. I don’t think Mr Asmussen has ever said that, and there has been confusion. The view that we have is the following: the supervisor makes the assessment – and that’s, by the way, how these things usually go in most member countries nowadays – the supervisor makes the assessment in total independence and then hands this assessment to the resolution authority, which nowadays, in many member countries, is the government. And then the government decides what it wants to do. The supervisor cannot decide what to do, whether to resolve or sell the bank, or whatever. It’s not its responsibility. And this is what Mr Asmussen said – so he’s been misinterpreted. There is no confusion on this point. The line is pretty clear. And by the way, we have also seen that there was a misunderstanding about what the Bundesbank thinks. The Bundesbank agrees 100% with this view. This is how supervisors work in all countries. Supervisors can’t have responsibilities that pertain or may pertain to the taxpayer. So, the supervisor makes the assessment and passes it on, saying: “Look, this bank is not viable under the present circumstances. You have to do something, but it’s up to you to decide what to do.”

On the second point, on Greece, the current adjustment programme for Greece expires at the end of 2014, so this leaves some time for the Eurogroup to decide on a possible extension of the current programme and to assess the prospects of Greece regaining access to capital markets. It’s also quite straightforward: if an extension of the programme is needed it will require further conditionality.

Question: I just have a specific question regarding Ireland. It intends to be the first country to exit a bailout at the end of this year. Do you think it will need a precautionary credit line?

Draghi: In Ireland, programme implementation is on track. Recent fiscal data have been positive overall. Market sentiment continues to improve. But challenges remain, especially in the financial sector. A decision will be taken in due time about the possible successor programme. A key consideration is that the conditions remain in place for a successful conclusion of the current programme. And Ireland is leading the way in this respect. It is crucial that an appropriate framework is in place to safeguard the achievements made and to avoid potential risks to full market access once the programme has been completed.

Question: Just as you said there in the previous question, Greece has another whole year until the end of 2014 for its programme to finish. But in Ireland we are talking about a couple of months. Do you think it is imperative that a decision is made on a strategy for exiting the bailout quite soon, in the next two months?

Draghi: That is up to the Eurogroup to decide.

Question: Not to go on about Greece too much, but there has also been a lot of talk about whether there should be some kind of debt relief and I wonder if I could just push you a little bit more on that. Is there anything you can say about whether that is something the ECB would consider in the light of the fact that you are major holders of Greek bonds?

Draghi: Well, the answer is no. We went through this when we had the discussions about Greece almost a year or a year and a half ago. It is pretty clear that we cannot undertake monetary financing. Article 123 of the Treaty forbids the ECB from undertaking monetary financing.

Question: There are some critics saying that the ECB is responsible for the crisis in some savings banks because of the low interest rates, which, by the way, also contribute to the expropriation of savings. Could you please comment on this because it is very much debated, especially here in Germany?

Is the ECB reflecting on the fact that, with high debt and countries coming out weak from recession, a mid-term inflation target is not enough to get out of the crisis and there are some economists who suggest that you should also link it to unemployment, as the Federal Reserve System does?

Draghi: The answer to the second question is pretty straightforward. Our mandate talks about price stability and that is our objective: price stability in the medium term.

On the first point, the ECB sets rates for the whole of the euro area. We see no inflation in Germany. Are interest rates low because the ECB’s rates are low? For the answer, just look at what happened to the interest rates on the ten-year Bund in the last month or so. It went up by about 50 basis points to slightly less than 2% and our rates had simply stayed the same. Actually, they were cut a month and a half ago. This relationship between our rates and rates on the Bund has to be looked at quite closely and it is not at all a direct relationship. As a matter of fact, there is another factor that plays into keeping interest rates artificially low in Germany and the Netherlands and in some other countries as well. It is the fact that we have fragmentation and these countries have become the safe haven for the euro area. For about three years, we have had flows pouring into these countries, keeping interest rates artificially low. Everything we have done to reduce fragmentation actually contributes to higher and more realistic rates in these countries and this should be acknowledged.

Question: Mr Draghi, I have got 2 questions. One is related to you announced last time on this press conference that you would put forward a proposal on minutes and I would like to hear if something like this was discussed and what the state of this discussion is.

Second question is on German politics. Are you watching the outcome of the general elections coming this month? And do you think that this can have an impact on the economy?

Draghi: On the second question, I have to give you a very general answer. Often elections have an impact on the economy, but I cannot comment on the specifics of this election.

On the first question, actually, if I am correct I did not use the word minutes. I think I used the word an “account” of our discussions. Work is going on, and as I have said it is important, it could - if it’s well done - it could actually give more light and transparency on the nature of our discussions. But it is quite important to acknowledge that our set-up, our institutional set-up, is not the same as the US, or the UK or Japan. We are a 17 countries monetary union. And so, the governors are there in their personal responsibility and they should remain independent in their decision-making. And so, anything that would threaten their independence would not be acceptable. So transparency, while keeping their independence.

Question:( inaudible interjection)

Draghi: We said yes, I think I did say that the Executive Board would present a proposal in the fall.

Question: The Spanish programme for the banking system is going to expire next January. Do you support an extension for the programme or another form of backstop or insurance for the Spanish banking system?

Draghi: The financial assistance programme is fully on track. Banks have been recapitalised, their restructuring plans have been implemented, the non-performing assets have been transferred to SAREB and SAREB has already started selling some of the assets. The deleveraging process is going as expected. Some banks have made steady progress in reducing their dependence on wholesale funding under the Eurosystem. As you know, Spanish banks have repaid a substantive amount. So the reform of the savings banks has been comprehensive. There are a few issues that remain, but they are likely to be resolved without any major impact on the liquidity or solvency of the Spanish banks.

Question: While I do not want to over-dramatise what is going on in St Petersburg, the market has become quite sensitive to news flow over Syria. That is one of the potential geopolitical downside risks that you have acknowledged, I think. In the medium term, there is also a growing concern about the emerging market slowdown and the deficit currencies. So my two-pronged question is: What specific responses have been discussed within the Governing Council to ease any market distress on either of these issues, and have you spoken to, or communicated with, the Federal Reserve or other central banks about the prospect of coordinated action, should it be necessary?

Draghi: We certainly are alert to the geopolitical risk that may come out of the Syrian situation and to the economic risk that may derive from the emerging market situation, which are two different things, really. At this point, I should say something I should have said before. As you can observe, when we look at the nature or the composition of the beginning of a recovery, I am very, very cautious about the recovery. I cannot share any enthusiasm. It is just the beginning. Let us see – these shoots are still very, very green. One thing I should have said is that, for the first time in about two years, it is domestic demand that is at the root of this recovery. It is still coupled with exports, but it is domestic demand. That is very important because if it continues, it gives a sense that the dependence of the recovery on the rest of the world is somewhat balanced by domestic demand. Secondly, we certainly stand ready to act. I did say this when I was asked about what we would do if interest rate or money market developments were unwarranted in view of our assessment of medium-term price stability. We certainly stand ready to act, whichever source these developments may derive from. I have commented on that before. We have not yet discussed any coordinated action, but we have periodic exchanges anyway. One of them will be this weekend in Basel. There will be an opportunity for a meeting with the central banks of major countries.

Question: Was there any discussion today on the Governing Council about a more explicit version of your forward guidance? You seem to be dipping your toes into giving us a fuller account by talking earlier about various governors saying this and that. So, if you could answer the question that way that would be brilliant.

And the second question is, as a former Amsterdam correspondent, I enjoyed your answer about Holland just now. I was wondering whether you could give us a similar sort of tour d’horizon about the situation in Italy, or is that a country you fundamentally will not talk about? And I say that because our Italian colleagues do not seem to be here today.

Draghi: I would rather not comment on the second question. I think you will understand why. So I think you will have to rely on someone else to have this tour d’horizon for Italy.

But, on the first question, we have of course reflected on the nature of our forward guidance. And we have asked ourselves what the objectives are of forward guidance. Forward guidance contains an assessment by a central bank of its view of the future and contains information about its policy response for the future. I think that is the essence of forward guidance. It is not a change in our reaction function, but rather an explanation of our reaction function. We wanted to be clear. We do not want to change it. There are two types of forward guidance: one is qualitative and the other one is quantitative, with precise state conditions. Ours is the first type. So, all in all, the Governing Council is fairly united – unanimous, actually – on the wish to maintain this type of forward guidance. I have previously mentioned the BIS paper which actually compares the results and levels of success of different types of forward guidance. As I have said before, the ECB does not score too badly. It scores very well on having controlled volatility and reduced the uncertainty within the corridor and it scores ok in controlling the levels of rates. But, as I have said, there is a continuous flow of news on rates. So, given our specific institutional set-up, the qualitative forward guidance that we have used is the most appropriate and you can easily see why a different type of forward guidance would create problems within our institutional set-up if we were to be willing to adopt a precise formulation, a quantitative formulation, which we are not.

Question: There is no change in the reaction function. Does that mean that, essentially, you would do nothing different if there was no forward guidance?

Draghi: No, because we basically said that, looking at the medium-term outlook for inflation, way beyond the short term, we wanted to make it clear that we have a downward bias in interest rates for an extended period of time. I think that is the essence and is something we have never said before. So the very fact of saying it is itself a very powerful clarification of our reaction function.

Question: My first question is also on forward guidance but on a different issue. At the end of the press conference in July you said that you would all agree that low levels of interest rates entail serious risks to financial stability, although there is no reference to financial stability in your forward guidance. However, the Bank of England, for example, explicitly mentions such risks as one of the free knock-outs for its forward guidance. So the question is; why is there no mention of financial stability risks in your forward guidance and, to be more precise, what would happen or what would be the reaction of the ECB if such risks emerge while the medium-term inflation outlook is still very subdued?

And the second question is on the resolution issue: just to clarify, you said that the ECB will make an assessment and hand it to the governments if, let’s say, they are the resolution authority, and leave it up to them to decide. Does that mean we could get into a situation where the ECB says “OK, this bank is a case for resolution but the authority says ‘no, we have a different view’”? What would happen in that case?

Draghi: In response to your second question, the practice for, I would say, almost all, if not all, supervisors in the euro area is the following. It is the supervisors who look at the viability of a bank in a certain situation. If they were to decide that the bank is not viable, then they would simply communicate this to the authority which has the responsibility to – well, first of all, there is what is called “supervisory action”, namely the bank would be asked to raise capital, sell assets, do a bail-in and so on. But suppose you have exhausted all these options or you simply judge that the bank is unviable no matter what supervisory action is undertaken. In that case you hand the bank to the resolution authority, which is often the government but is often separate. In our proposed legislation it will be a separate entity; whether it is the Commission or another authority is not clear yet. And they will decide what to do, because it is up to them, as they are using, or may be using, public money, or they may be considering that the further bail-in could be feasible. But the assessment is made by the supervisor. The actions required to respond to this assessment would be decided upon by the independent authority. And that is pretty clear and that has been the view of the ECB.

Your second question is about financial stability. First of all, financial stability risks are often addressed by macro-prudential tools. That is what we have in mind and it is actually part of the SSM creation. We do not view now movements in interest rates as a realistic way to respond to risks in financial stability that we do not see. In other words, we do not see risks to financial stability that may originate from the too low levels of interest rates at the present time. But, certainly, if there were a situation like we had in the past, we would have to think about it and react. In the past we did not have such a subdued medium-term outlook of inflation as we are seeing now.

Question: I wonder if you could tell us what consideration – if any – the Governing Council has given to ways of cementing the forward guidance, perhaps releasing inflation forecasts into 2015 or other methods that might give the market more comfort with respect to the forward guidance, given the market differentials that we are seeing – not only for yourselves, but also for other central banks.

Draghi: I think that is a legitimate question, and the inflation forecast for 2015 will be published at the end of the year, when the next projections are announced.

Question: My question is on OMTs. Just one year ago, you announced the details of these measures. What is interesting for me is why this measure is so effective without being activated. Other central banks – for example, the Bank of Japan and the Federal Reserve – have introduced similar programmes, but they have needed to be activated in order to be effective. So my question is; why is it that only in the euro area has such a programme been effective without being activated?

Draghi: Well, it’s very hard to answer this question without flattering oneself! But I suspect that the design of this measure has made it both powerful and credible. It’s powerful because it addresses a realistic objective, namely redenomination risk spreads – the spreads that are derived from redenomination risks. It’s credible because it is accompanied by conditionality. In our present situation (and in many others, I suspect), a commitment to buy an infinite amount of bonds in order to keep interest rates at a certain level is often not credible – besides being illegal in our present situation. So, I think this combination of a realistic target, accompanied by what are in principle unlimited means (but are, in fact, limited by the market’s size) and by conditionality, has made this measure very effective without it needing to be activated. But conditionality is an important ingredient, because it says that once this measure is activated, the country that is on the receiving end will actually be undertaking a series of actions – budgetary consolidation or structural reforms, or both – that will have the effect of increasing the value of the bonds issued by that country, the value of the very bonds that the ECB is buying into it. So, the conditionality, if properly activated, produces an increase in the value – if you want to use that word – of the collateral that the country posts in exchange for ECB action. I think that’s one way to look at this. Thanks for asking!

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