Bloomberg News

Draghi Says Euro-Area Economic Risks Remain on Downside (4)

May 02, 2013

European Central Bank President Mario Draghi comments on interest rates, inflation, and the economy.

He made the remarks at a press conference in Bratislava today after ECB policy makers cut the benchmark interest rate to a record low of 0.50 percent.

On whether today’s decision was unanimous:

“There was a very, very strong prevailing consensus toward an interest-rate cut, and within that there was a prevailing consensus for 25 basis points.”

On a negative deposit rate:

“We said in the past we are technically ready. There are several unintended consequences that may stem from this measure. We will address and cope with these consequences if we decide to act. And we will again look at this with an open mind and stand ready to act if needed.”

On helping to promote credit:

“All the options are still very open here, our thinking is very much in a preliminary stage given the complexity of the issue and we haven’t reached a conclusion either way.”

On banks:

“We should not forget that the funding crisis that the banks experienced.” It “caused a credit contraction of which we are victims even today.”

“The two LTROs avoided a worsening, a collapse, of the situation. And the OMT removed the tail risk for the euro area.”

“We see progress on the funding side. This progress is documented by the fact that domestic deposits continue to go up in all the banks of all the stressed countries.”

“Do we say that everything is back to normal? No. On the lending side progress is more muted.”

Something that may be a “source of comfort” is that bank lending surveys show that there is a less of an increase in tightening. Banks continue to tighten but at a slower pace.’’

“From this survey data, I wouldn’t give the conclusion that there’s no more fragmentation, but we are observing improvements.”

“This credit contraction has been lasting for a long time and has been compounded by the short-term contractionary effects of fiscal policies. It’s not going to be a one day affair to to unravel this.”

“Why is credit subdued? There are demand reasons, and supply. The demand reasons are that the economy is indeed weak, in consumption and fixed investment.”

“The dominant factor explaining the low demand for credit is the macroeconomic uncertainty.”

On today’s decision to cut interest rates:

“The governing council has taken this decision consistent with low price pressure over the medium term.”

“Inflation expectations are well anchored in the medium term.”

“All in all the Governing Council decided to go for a cut” and “I invite you not to underestimate the importance of the other measures.”

“We will look at all the incoming data, and we will monitor all incoming developments, we stand ready to act if needed.”

“We act consistently with our analysis of price developments and the objective of maintaining price stability in the medium term.”

On ECB policy:

“Monetary policy by the ECB has been extraordinarily accommodative.”

On limits of monetary policy:

“The ECB cannot supplant governments for their lack of structural reforms.”

“The ECB cannot clean banks balance sheets. The ECB is not in the business of monetary financing.”

On austerity versus growth:

“It’s an interesting debate. But let’s not forget how this crisis started.”

“Budget positions were not sustainable. This was the first stage.”

“The message the ECB has been giving for a while, don’t unravel the progress that has been achieved.”

“Fiscal consolidation is contractionary in the short term, so you want to take action to mitigate that.”

But “many fiscal consolidations took place under emergency, and most governments took the simplest route, of raising taxes. Taxes were already very high.”

“This could be rebalanced into lower government expenditure and lower taxes.”

Credibility is assured “by having a detailed medium-term fiscal consolidation framework.”

On today’s council meeting:

“We took a number of key decisions” on ECB interest rates, liquidity issues, and possible ways to enhance credit provisions.

“These decisions are consistent with low underlying price pressures over the medium term.”

“Monetary and loan dynamics remain subdued. Weak economic sentiment has extended into spring.”

“Against this overall background our overall monetary policy stance will remain accommodative for as long as needed.”

On ECB operations:

“We decided today to continue conducting the main refinancing operations as fixed rate tender procedures with full allotment for as long as necessary and at least until the end of sixth maintenance period of 2014 on July 8, 2014.”

“We decided to conduct the 3-month longer term refinancing operations, LTROs, to be allotted until the end of the second quarter 2014 as fixed rate tender procedures with full allotment.”

“The Governing Council decided to start consultations with other European institutions on initiatives to promoting a functioning market for ABS collateralized by loans to non- financial corporations. In the meantime It is essential for governments to intensify the implementation of structural reforms at national levels.”

On the economic outlook:

“Overall labor-market conditions remain weak.”

“Looking ahead, euro area export growth should benefit from a recovery in global demand and our monetary policy stance should continue to support domestic demand.”

“The improvements in financial markets since last summer should work their way to real economy.”

“Necessary balance sheet adjustments in the public and private sectors will continue to weigh on activity.”

“Euro-area economic activity should stabilize and recovery gradually in the second half.”

“The risks surrounding the economic outlook for the euro area continue to be on the downside.”

On inflation :

“Inflation rates could remain subject to some volatility throughout the year.”

“Underlying price trends should persist, and over the medium term, inflation should remain in line with price stability.”

“Risks to price developments are broadly balanced over the medium term.”

On money growth:

“The underlying pace of monetary expansion continues to be subdued.”

“Weak loan dynamics reflect current stage of business cycle.”

“To ensure adequate transmission of monetary policy... it is essential that the fragmentation of euro area credit markets continues to decline further.”

“Progress has been made since last summer in improving the funding situation of banks”

On how ECB actions help the economy:

“I would use the word frustrated, yes. We view improvements in financial markets. We think financial markets are the only and the necessary channel for the transmission of monetary policy. You don’t go around with helicopter money, throwing money. In Europe, you go through banks. You don’t have capital markets as you have in the U.S. We have to go via the banking system. That is why in my press conference I try to give you a very detailed reading of different indicators because it shows how closely we are trying to examine and analyze reality to see whether these impulses that we’ve been transmitting to the economy get translated into better welfare, lower unemployment, better economic activity.

To contact the reporters on this story: Jeff Black in Frankfurt at; Jennifer Ryan in London at

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

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