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ΟΛΟΚΛΗΡΗ Η PRESS CONFERANCE TOΥ MARIO DRAGHI

Webcast of the press conference 16 July 2015

Press conference following the meeting of the Governing Council of the European Central Bank on 16 July 2015 at its premises in Frankfurt am Main, Germany , starting at 14:30 CET:

Introductory statement by Mario Draghi, President of the ECB.

Question and answer session. Registered journalists pose questions to Mario Draghi, President of the ECB, and to Vítor Constâncio, Vice-President of the ECB.

Text of the introductory statement, questions from journalists and President’s answers

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

Mario Draghi, President of the ECB,
Vítor Constâncio, Vice-President of the ECB,
Frankfurt am Main, 16 July 2015

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 Dombrovskis.

Based on our regular economic and monetary analyses, and in line with our forward guidance, we decided to keep the key ECB interest rates unchanged.

Regarding non-standard monetary policy measures, the asset purchase programmes continue to proceed smoothly. As explained on previous occasions, our monthly asset purchases of €60 billion are intended to run until the end of September 2016 and, in any case, until we see a sustained adjustment in the path of inflation that is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term. When carrying out its assessment, the Governing Council will follow its monetary policy strategy and concentrate on trends in inflation and the medium-term outlook for price stability.

All in all, the information that has become available since the Governing Council meeting in early June has been broadly in line with our expectations. Recent developments in financial markets, which partly reflect greater uncertainty, have not changed the Governing Council’s assessment of a broadening of the euro area’s economic recovery and a gradual increase in inflation rates over the coming years. The ECB’s monetary policy stance remains accommodative and market-based inflation expectations have, on balance, stabilised or recovered further since our meeting in early June. The latest information also remains consistent with a continued pass-through of our monetary policy measures to the cost and availability of credit for firms and households. Our measures thereby continue to contribute to economic growth, a reduction in economic slack, and money and credit expansion. The full implementation of all our monetary policy measures will lead to a sustained return of inflation rates towards levels below, but close to, 2% in the medium term, and will underpin the firm anchoring of medium to long-term inflation expectations.

Looking ahead, we will continue to closely monitor the situation in financial markets, as well as the potential implications for the monetary policy stance and for the outlook for price stability. If any factors were to lead to an unwarranted tightening of monetary policy, or if the outlook for price stability were to materially change, the Governing Council would respond to such a situation by using all the instruments available within its mandate.

Let me now explain our assessment of the available information in greater detail, starting with the economic analysis. Euro area quarterly real GDP growth was confirmed at 0.4% in the first quarter of 2015, supported by contributions from private consumption and investment. The latest survey data, available up to June, remain consistent with a continuation of the moderate growth trend in the second quarter. Looking ahead, we expect the economic recovery to broaden further. Domestic demand should be further supported by our monetary policy measures and their favourable impact on financial conditions, as well as by the progress made with fiscal consolidation and structural reforms. Moreover, the recent decline in oil prices should provide additional support for households’ real disposable income and corporate profitability and, therefore, private consumption and investment. Furthermore, demand for euro area exports should benefit from improvements in price competitiveness. However, the ongoing slowdown in emerging market economies continues to weigh on the global outlook and economic growth in the euro area is likely to continue to be dampened by the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms.

The downside risks surrounding the economic outlook for the euro area have generally been contained as a result of our monetary policy decisions, as well as oil price and exchange rate developments.

Inflation bottomed out at the beginning of the year and has moved back into positive territory in recent months. According to Eurostat, euro area annual HICP inflation was 0.2% in June 2015, slightly down from 0.3% in May. On the basis of the information available and current oil futures prices, annual HICP inflation is expected to remain low in the months ahead and to rise towards the end of the year, also on account of base effects associated with the fall in oil prices in late 2014. Supported by the expected economic recovery, the impact of the lower euro exchange rate and the assumption embedded in oil futures markets of somewhat higher oil prices in the years ahead, inflation rates are expected to pick up further during 2016 and 2017.

The Governing Council will continue to monitor closely the risks to the outlook for price developments over the medium term. In this context, we will focus in particular on the pass-through of our monetary policy measures, as well as on geopolitical, energy and exchange rate developments.

Turning to the monetary analysis, recent data confirm robust growth in broad money (M3). The annual growth rate of M3 was 5.0% in May 2015, compared with 5.3% in April. Annual growth in M3 continues to be strongly supported by its most liquid components, with the narrow monetary aggregate M1 growing at an annual rate of 11.2% in May.

Loan dynamics continued to improve. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) increased to 0.1% in May, up from -0.1% in April, continuing its gradual recovery from a trough of -3.2% in February 2014. This is consistent with the positive evidence from the bank lending survey for the second quarter of 2015. Banks reported a continued net easing of credit standards on loans to enterprises which was stronger than expected in the previous survey round. Net demand for loans to enterprises increased further, supported by demand for credit related to fixed investment. Fragmentation in terms of credit demand in individual countries decreased and the targeted longer-term refinancing operations helped to improve the terms and conditions for credit supply. Despite these improvements, the dynamics of loans to non-financial corporations remain subdued. They continue 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) increased to 1.4% in May 2015, after 1.3% in April. Overall, the monetary policy measures we have put in place since June 2014 provide clear support for improvements both in borrowing conditions for firms and households and in credit flows across the euro area.

To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirms the need to maintain a steady monetary policy course, firmly implementing the Governing Council’s monetary policy decisions. The full implementation of all our monetary policy measures will provide the necessary support to the economic recovery in the euro area and lead to a sustained return of inflation rates towards levels below, but close to, 2% in the medium term.

Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance contributes to supporting economic activity. However, in order to reap the full benefits from our monetary policy measures, other policy areas must contribute decisively. Given continued high structural unemployment and low potential output growth in the euro area, the ongoing cyclical recovery should be supported by effective structural policies. In particular, in order to increase investment, boost job creation and raise productivity, both the implementation of product and labour market reforms and actions to improve the business environment for firms need to gain momentum in several countries. A swift and effective implementation of these reforms, in an environment of accommodative monetary policy, will not only lead to higher sustainable economic growth in the euro area but will also raise expectations of permanently higher incomes. Fiscal policies should support the economic recovery while remaining in compliance with the Stability and Growth Pact. Full and consistent implementation of the Pact is key for confidence in our fiscal framework.

We are now at your disposal for questions.

* * *

Draghi: The decision to raise ELA today is symmetrical to the one we took a few days ago to freeze it. As you know, ELA goes to solvent banks with adequate collateral. After the breakdown of negotiations and the likely default to the IMF, the ECB decided to freeze ELA at that level, applying what we call the proportionality criteria. There were some who were actually calling for a cut to zero, which would have caused an immediate collapse of the banking system. The Governing Council decided to keep ELA at that level.

Now, things have changed. We had a series of news, with the approval of the bridge financing package, with the various votes in various parliaments – to begin with, in the Greek Parliament – which have restored the conditions for a raise in ELA.

Your second point is about the Grexit, whether this should be pronounced or not. Let me tell you what I said in the course of the summit meetings that we had in Brussels last weekend. Especially it was addressed to several observers, policy-makers, public opinion scholars who have suggested that we should have cut ELA to Greece a long time ago. I said basically that it’s not up to the ECB to decide who’s a member, who’s not. The ECB has acted within its mandate and will continue to do so, under the assumption that Greece will remain a member of the euro area. Whether this assumption proves right is entirely within the responsibility both of the Greek Government and of the Member States here represented.

So the ECB continues to act on the assumption that Greece is, it is of course, and will remain, a member of the euro area.

Draghi: To your first question I should read out the Eurogroup statement on Greece that just came out. “The Eurogroup welcomes the adoption by the Greek Parliament of all the commitments specified in the Euro Summit statement of 12 July. On the basis of a positive assessment by the institutions, which concluded that the authorities have implemented the first set of four measures in a timely and overall satisfactory manner and which confirmed that the Euro Summit statement has been included in the preamble to the implementing law adopted by the Greek parliament, we reached today a decision to grant in principle a three-year ESM stability support to Greece, subject to the completion of relevant national procedures. Upon the completion of the relevant national procedures and the formal decision by the ESM Board of Governors expected by the end of this week, the institutions would be entrusted with the task of swiftly negotiating an MoU detailing the policy conditionality attached to the financial assistance facility. The Eurogroup calls on the Greek authorities to swiftly adopt the second set of measures by 22 July as foreseen in the Euro Summit statement, and update the legislation related to the first set of measures consistent with the recommendations made by the institutions in their compliance report.”

So several positive things have happened that would justify the increase in ELA that we approved today. Incidentally, I didn’t say by how much. We substantially accommodated the request put forward by the Bank of Greece, recalibrated over one week. So the increase would be €900 million over one week.

To your second point, let me say that the liquidity provision, according to our rules, was never meant to be unlimited and unconditional. It’s just one good opportunity to clarify some confusion. And let me preface this by saying that we take these sorts of criticisms very, very seriously. I don’t want to underplay the difficulty that the ECB and the Governing Council of the ECB had in the last few weeks about having to take decisions between making sure the payment system continued to work, liquidity provision, monetary policy and not to amass excessive risk for the euro system all at the same time.

But just let me make one legal point. First of all, the payment system that some people have referred to doesn’t have to do with liquidity provisions. There is an article in the Treaty that says that basically the ECB has the responsibility to promote the smooth functioning of the payment system. But this has to do with the functioning of TARGET2, the distribution of notes, coins. So not with the provision of liquidity, which actually is regulated by a different provision, in Article 18.1 in the ECB Statute: “In order to achieve the objectives of the ESCB, the ECB and the national central banks may conduct credit operations with credit institutions and other market participants, with lending based on adequate collateral.” This is the Treaty provision. But our operations were not monetary policy operations, but ELA operations, and so they are regulated by a separate agreement, which makes explicit reference to the necessity to have sufficient collateral. So, all in all, liquidity provision has never been unconditional and unlimited.

But is it true that we did not provide enough liquidity to Greece all throughout this time? Let me just give you one piece of data. Now, the month with the highest deposit outflow was January 2015. This was the month of the Greek elections. The monthly deposit outflow was €13.3 billion. The increase in ELA was €35.2 billion. The month with the second highest deposit outflow was last month, June 2015, again associated with increased political uncertainty related to the breakdown of the negotiations and the announcement of the referendum. The monthly deposit outflows were €8.1 billion. The increase in Eurosystem lending to the Greek banking sector was €10.3 billion.

So, as I said several times, ELA has increased from zero to almost €90 billion, and now the Eurosystem has a total exposure to Greece of about €130 billion, which makes the Eurosystem the largest depositor in Greece. If you take the total private sector deposits in Greece, they are €120 billion, while the Eurosystem exposure to Greece now is, as I said, about €130 billion. So I find these observations that there wasn’t enough liquidity assistance, or that actually there was a bank run that was caused by the ECB, quite unwarranted, and certainly unfounded.

Oh, incidentally, each time we announced an ELA operation we also said – and I think I said it explicitly in April – “and emergency lending assistance will continue, liquidity assistance will continue.” So even communication-wise, there was always quite an open stance. However, when the solvency and the collateral adequacy and quality prospects deteriorated, we had to calibrate the provision of liquidity according to these developments, and that’s how it went, for the reasons that I mentioned before. And we did it, however, as I said, always acting on the assumption that Greece will be a member of the euro area. There was never a question. And that is what makes us different from the ones who said, ‘You should have cut ELA a long time ago.’ They wanted us not to respect our mandate, deciding who should be a member of the euro area and who should not.

Draghi: In response to the first question, I frankly hesitate in commenting on the programme as such. But let me say one thing: for, I believe, the first time, the text that circulated at the level of heads of state was not generic, was quite specific. It contained an impressive list of policy measures, prior actions and structural reforms, for which the Greek Parliament was asked either to take a vote on or to endorse these measures. Without commenting specifically on that, let me say that the overall purpose of that document is to ensure that Greece will become a thriving economy in the euro area. Quite considerable space in that document was given to structural reforms, so it was not the usual budget-based document only. That’s one thing.

The second thing is something that I did say many times: the programme had to be a strong programme, which promotes growth, which ensures social fairness, which is also fiscally sustainable, and which addresses the financial stability problems. I believe that by and large that programme has these features. And finally, there is another issue that has been widely discussed: is debt relief necessary? It’s uncontroversial that debt relief is necessary, and I think that nobody has ever disputed that. The issue is: what is the best form of debt relief within our framework, within our legal, institutional framework? I think we should focus on this point in the coming weeks.

The second point is about whether the simple fact of having discussed a possibility would weaken the union: well, I mean, if you phrase it this way you can see that that is not an issue. There were discussions, and I think discussions by themselves don’t necessarily weaken things – but they have shown, again, something that I’ve said many times: that this union is imperfect. And being imperfect, is fragile, is vulnerable, and doesn’t deliver all the benefits that it could if it were to be completed. So the future now should see decisive steps on further integration.

Draghi: On your first question, today we have accommodated the Bank of Greece’s request, completely and fully, though scaled to one week. This is understandable because we want to see how the situation will evolve. In so doing, we have accepted the assessment of the Bank of Greece in terms of the immediate needs of liquidity that the Greek economy has. Now, if things continue to proceed in a positive way, as they have done in the last two days, we will have a phase during which the Bank of Greece and the ECB, which are working very actively in monitoring the situation, will look at exactly the needs of the Greek economy: how can they be gradually satisfied? What are the general conditions so as to make sure that we are always there, ready to provide the Greek economy with the needed liquidity, and at the same time we don’t risk a bank run again?

In the meantime, all these developments are improving the quality of collateral that the Greek banks can post. Because, you see, each time we have an improvement in the quality of the Greek government paper, we have an improvement in the quality of the collateral of the banks. And not only in that, because as you know, much of the equity, probably more than 50% of the equity of the Greek banks – or the largest Greek banks, at least – is formed by credits to the state. So the quality of these credits improves or worsens according to the overall developments and the quality of the policy dialogue between the Greek Government and the euro area Member States.

The second point: there are two assessments which are being given of the solvency of the bank. The point-in-time assessment which is given by supervisor looks at the Common Equity Tier 1 at 4.5%, the total capital ratio at 8%, and the Tier 1 capital ratio at 6%. If you take these numbers, Greek banks are solvent, and that’s what the Chair of the Supervisory Board has said several times. However, if you look at it prospectively, and just on the basis of what I said about the enormous influence that the quality of the government paper has on the solvency of the banks, well, you question their solvency in prospective terms because you look at how things go, how the policy dialogue develops, and therefore how the quality of the government paper changes according to these developments. And therefore you give some assessments. It’s on the basis of this prospective assessment that looks at the quality of the government paper, but also at the quality of the overall banks’ balance sheets after such a protracted recession, and therefore with a foreseeable increase in non-performing loans: it’s on the basis of these two considerations – by and large; also others, but these are the two most important – that an overall envelope of €25 billion was earmarked, out of a programme of between €82 billion and €86 billion, was earmarked for the Greek banking system.

Draghi: In a sense what I said before could be used in several ways: I’m not going to comment on politicians’ statements. I only know what our mandate is. And our mandate is to act based on the assumption that Greece is, of course, and will be a member of the euro area.

Draghi: Yes, I never doubt your investigative capacities. But the answer to the first point: it’s hard to predict. We are all aware it’s clearly in the interest of the Greek economy to have these capital controls last as little as possible. By the way, the responsibility to lift capital controls, as well as to impose them, is with the Greek government. So that is something that the Greek government has to decide. But we have to be doing this in a way that we don’t run the opposite risk which we were about to run before the imposition of capital controls, namely a bank run, which would leave all the depositors being, basically, hit. Capital controls have protected the depositors – which, by the way, to a great extent are now small depositors. The awareness that capital controls are hampering the recovery of the Greek economy is there, and the idea is to move as fast as we can, but also with a due degree of caution.

Now, on ELA, you’re absolutely right: that was the usual – that was the past, in fact. In the past, there was a certain reticence to publish the numbers of ELA, because the whole ELA concept was born to address liquidity shortages of individual banks that are solvent and have collateral. So the situation that was addressed by the old ELA agreement was one where a bank which was solvent and with adequate collateral, in spite of this was experiencing a liquidity shortage of some kind, and would be protected by this facility.

Now, it was quite understandable if you had that situation, and the amounts and the modalities of ELA were to be made public, this – it was thought, at least – could worsen the situation of that bank at that time. Now here we are facing a completely different set-up where we are not talking about individual banks, but we are talking about countries; banking systems. So we’re talking about a systemic problem, not any longer about an individual bank, an individual institution short of collateral. And so we are in fact revising our communication about ELA, because there’s absolutely no reason to keep things secret now, when we’re addressing a massive systemic problem, a macroeconomic problem.

Draghi: Well, on the first, about 20 July repayment, all my evidence and information leads me to say that we will be repaid, as well as the IMF, so that is off the table. I don’t want to speculate what are the conditions whereby countries would not receive the assistance of the ECB. There are three documents that you should look at: one is the Treaty, another one is the ECB Statute, and the third is the ELA agreement. All of them make the point of solvency and availability of adequate collateral. Then, as you’ve just seen in the case of Greece, the assessment of these two features is not at all simple, is not at all one-dimensional. It’s point-in-time, it’s dynamic, it depends on the underlying issuer of this collateral; what is the credit-worthiness of the underlying issuer.

So it’s very difficult to think about a system where you simply push a button and you decide what to do. I think by and large the Governing Council has shown that it is a rule-based decision-making body, even in the very difficult circumstances that have characterised our work in the last few months.

Your second point is whether we respect the decision of the politicians. Well, if you phrase it this way it’s hard to answer. But I would phrase it differently: do we respect the Treaty, as it is today, as it may become tomorrow? Yes. That’s where our mandate is enshrined.

Draghi: No, there was no decision, on haircuts. We had raised it before and we took no decision today.

On the point of further integration, well, you know, it’s not so much what matters is my disappointment or not; clearly there was such a complex climate focused on what was happening in Greece. My understanding is the European Council is going to discuss this report at the next meeting, I believe, or the meeting after that. What is important is that – I was answering before with the same words – what this experience shows is that we have to act, and we can act in different ways. The Five Presidents’ report is a rather broad roadmap, but it sends three messages. First of all, complete the banking union. That is to say, establish a deposit insurance guarantee scheme and the Single Resolution Fund. Again, the modalities of this oscillate – and I don’t want to get into too much detail –between a purely private-sector financed system and a purely mutualised, public-sector financed system. So we’ll have to decide there, but the important thing is to move now on that front.

The second area of action is what the European Commission has launched, namely the creation of a Capital Markets Union. That’s very important for an area that doesn’t share a common budget, or a federal budget, because a Capital Markets Union would be an extraordinary assistance in sharing risks across the Union. And that is actually a very ambitious and complex, and very likely long undertaking, because it entails changes in legislation in several parts of the area. Mostly that, legislation that’s been with national countries for ages, like bankruptcy legislation and so on.

And then the third area is, what are member countries going to do in a certain number of years as far as fiscal union, economic union and political union are concerned? So the report doesn’t tell what countries should do in this area. It only urges member countries to reflect on what sort of a roadmap they want to design for themselves in these areas.

Draghi: Now, on the first point, it’s actually – technically I believe the question about whether it was unanimous or not is not well posed. The decision here is not to object to the request of the Bank of Greece, and what you need in order to object is a two-thirds majority. And that was not there. So by definition, you needn’t have unanimity on these decisions, because it’s not really what’s required. [1]

Now, the other thing is about what makes us confident. We know that there is a financing concept that’s been elaborated and it’s on its way to be approved. It’s been elaborated by the European Commission, which I want to thank for their responsiveness, for the designs capacity, and I want to thank also all the members of the European Union that have made this possible.