Bloomberg News

ECB’s Draghi Sees ‘Tentative Signs’ of Stabilizing Economy

January 12, 2012

(Updates with comments on bank support, Hungary.)

Jan. 12 (Bloomberg) -- European Central Bank President Mario Draghi comments on monetary policy and the euro-region economy.

He spoke at a press conference in Frankfurt today after the central bank kept the benchmark interest rate on hold at 1 percent.

On Hungary:

“I have to say that we are really very concerned, because the ECB is extremely careful and attentive to signs of pressure being put by the decision-making body of any member state on their NCBs.”

On former Swiss central bank governor Philipp Hildebrand:

“We all regret the developments that led to Mr. Hildebrand’s resignation.”

“We will miss a very, very good central banker governor.”

On support for banks:

“We do expect a substantial demand in the second LTRO.”

“There is no doubt that expanding the collateral rules as we’ve done so that we can increase access to the LTRO by a much larger variety of banks, we also expand the risks, but our risk management is very well developed.”

“We are also quite confident that we’ll manage the risks of this.”

“We are actually giving a substantial contribution to the real economy by accepting these collaterals; we are also confident we will manage the risks.”

“The fundamental thing is that the decision gave to all the banks an insurance against the risk of being without liquidity.”

“It also gave the banks time to properly manage term liquidity and assets and liabilities in a more effective way.”

“Some unsecured bank bond markets have reopened.”

“ We also saw interest rates declining substantially, if not dramatically, all along the yield curve, initially along the short part, but now also along the long part with today’s declines.”

“We have other signs that this money is actually flowing through the economy.”

“By and large, the banks that have borrowed the money from the ECB are not the same that are re-depositing the money with the ECB.”

“The more liquidity you inject into the system, the bigger the liability side of the ECB becomes.”

“We do think that at least this decision has prevented a credit contraction that would have been more serious, much more serious.”

“There are parts of the euro area where the credit contraction is already visible, and parts where it is not already visible.”

“The provision of liquidity and the allotment modes for refinancing operations will continue to support euro-area banks, and thus the financing of the real economy. The extensive recourse to the first three-year refinancing operation indicates that our non-standard policy measures are providing a substantial contribution to improving the funding situation of banks, thereby supporting financing conditions and confidence. In addition, we are actively working towards the implementation of all the measures announced at our December meeting, which should provide additional support to the economy. As stated on previous occasions, all the non-standard monetary policy measures are temporary in nature.”

On Greece:

Greece “has to bring back its fiscal action on track, has to complete the fiscal reforms and has to move forward on the fiscal consolidation front.”

“One has to also keep in mind that the negotiation in Greece takes place between the Greek government and the creditors so the ECB is not part of the negotiations.”

“PSI was an understandable political response, but it had unintended consequences. The measure which was went over and above any expectation at the time. Everybody has realized we never want to have any PSI in the future.”

On governments’ response to the debt crisis:

“To have a firewall that is really effective, it has to be operational and fully equipped in order to face the extent of the challenges are in front of us. Anything the governments will be able to do to increase the firepower is welcomed by the ECB.”

“The fiscal contraction ought to be mitigated. Given that to mitigate this fiscal contraction one has to undertake structural reforms that are geared to enhance growth, competitiveness and job creation.

“It would be highly welcome if this fiscal compact could be signed at the end of this month rather than waiting for March.”

“Some of the stressed countries are actually undertaking very substantial, very significant progress in the fiscal consolidation area. The markets are showing some appreciation for this.”

“Euro-area governments need to do their utmost to support fiscal sustainability by correcting excessive deficits according to the agreed timetables.”

“It is crucial that all the elements be implemented rigorously.”

“The Governing Council welcomes the European Council’s agreement to move to a stronger economic union.”

On the European Financial Stability Facility:

“We are close to signing the agency agreement with the EFSF.”

“The EFSF has a completely different task to the ECB.”

“We are willing to put all our technostructure at the disposal of the EFSF.”

On today’s rate decision:

“The decision and the whole discussion was unanimous.”

On monetary policy:

“The monetary stance is and will remain accommodative.”

“It is essential for monetary policy to maintain price stability over the medium term, thereby ensuring a firm anchoring of inflation expectations in the euro area in line with our aim of maintaining inflation rates below, but close to, 2 percent over the medium term. Such anchoring is a prerequisite for monetary policy to make its contribution towards supporting economic growth and job creation in the euro area. A very thorough analysis of all incoming data and developments over the period ahead is warranted.”

On the economy:

“ We see a weakening of the economic activity in the euro area.”

“Some survey data seem to indicate that there may be some stabilization at low levels, but it is very hard to express a judgment of confidence. The hard data don’t yet show this.”

“Inflation is likely to stay above 2 percent for several months to come, before declining to below 2 percent. At the same time, the underlying pace of monetary expansion remains moderate. As expected, ongoing financial market tensions continue to dampen economic activity in the euro area, while, according to some recent survey indicators, there are tentative signs of a stabilization in activity at low levels. The economic outlook remains subject to high uncertainty and substantial downside risks. In such an environment, cost, wage and price pressures in the euro area should remain modest and inflation rates should develop in line with price stability over the policy-relevant horizon.

--Editor: Patrick G. Henry

To contact the reporters on this story: Jeff Black in Frankfurt at; Svenja O’Donnell in London at

To contact the editor responsible for this story: Craig Stirling at

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