Mario Draghi: Exchange of views with members of the Irish
Parliament
Introductory statement by Mr Mario Draghi, President of the European Central Bank, during his
exchange of views with the House of Representatives, Dublin, 8 November 2018.
* * *
Thank you, Chairman. I am happy to be back in Dublin and honoured to be invited to speak at the
Oireachtas. On this occasion, I am joined by my colleague, Philip Lane, whom you meet
regularly in his capacity as Governor of the Central Bank of Ireland.
While the ECB is accountable to the European Parliament, we greatly value our exchanges with
national parliaments. In September, some of you already met the Chair of the Supervisory Board,
Danièle Nouy, in Frankfurt and discussed the ECB's supervisory policies. In full respect of the
functional separation between the ECB's monetary policy and its supervisory tasks, today is an
opportunity to discuss our monetary policy and policies to make the euro area economy and its
constituent parts more resilient. In this respect, I expect an open exchange from this meeting,
which will give us a chance to listen to and better appreciate each other's positions. I am
conscious that I am speaking in a country that went through a severe crisis. The Irish people
made tremendous efforts, for which I have great respect. And these efforts are now paying off.
The euro area economic outlook
Ten years after the start of the global financial crisis, the euro area economy is performing well -
and has been for some time. We have now seen 22 consecutive quarters of economic growth,
while over 9 million jobs have been created and the unemployment rate has declined to 8.1%, its
lowest level since November 2008.
The Irish economy has seen a particularly strong expansion in recent years. Ireland is now
growing at the fastest pace of any euro area country. Unemployment has been falling too, and
now stands well below the euro area average. This is all the more impressive given the severe
crisis Ireland went through and the legacies it is dealing with, including high private debt and
arrears.
Looking ahead, while some sector-specific data and selected survey results have been
somewhat weaker than expected, the latest incoming information overall suggests that the
broad-based expansion in the euro area, and in Ireland, is set to continue. Against this
background, euro area inflation is expected to continue to converge towards the ECB's objective
of below, but close to, 2% over the medium term.
Getting to this point has required considerable monetary policy support. The euro area is looking
back on several years of exceptionally low interest rates and unconventional monetary policy
measures. The ECB's key interest rates have been at unprecedented low levels since 2009.
They have been supported by a series of unconventional measures, introduced in the face of a
protracted recession and persistently low inflation.
While we are now at the point where we anticipate - subject to incoming data confirming our
medium-term inflation outlook - that we will end net asset purchases at the end of the year,
significant monetary stimulus will still be needed to ensure the continued sustained convergence
of inflation to levels that are below, but close to, 2% over the medium term. Even after we end our
net asset purchases, monetary stimulus will continue to be provided by the guidance we have
given namely that we expect to keep interest rates at their present levels at least through the
summer of 2019 and to maintain the stock of assets on our balance sheet by reinvesting
maturing bonds purchased under the asset purchase programme for an extended period of time
after the end of our net asset purchases.
But the overall favourable outlook and our still accommodative stance should not invite
complacency. Although on the whole the risks surrounding the euro area growth outlook can still
be assessed as broadly balanced, risks relating to protectionism, vulnerabilities in emerging
markets and financial market volatility remain/are prominent. We are seeing a growing
willingness to question multilateralism, which has underpinned global growth since the end of the
Second World War. The protectionist trade measures implemented may have had very limited
effects thus far, but the escalation of trade tensions is undermining confidence.
Financial stability
Allow me also to say a few words about euro area financial stability. The financial stability
environment in the euro area overall remains favourable, but it has become somewhat more
challenging in recent months.
The results of the European stress test published last Friday show that euro area banks are
increasingly resilient to financial shocks. This also reflects the continuing economic expansion,
which has strengthened private and public balance sheets alike.
Still, there are risks. These include liquidity risks in the non-bank financial sector that could be
transmitted to the broader financial system. Developments in this area should be closely
monitored, and the regulatory and supervisory framework for non-banks needs to be
strengthened.
Asset prices also require close monitoring. While there is currently no compelling evidence of
overstretched asset valuations at the euro area level, we are seeing some localised risks.
However, euro area monetary policy is not the appropriate tool with which to address such risks.
They call instead for targeted macroprudential policies, which can be tailored to local and
sectoral conditions. The recent decisions by the Central Bank of Ireland are an example of how
macroprudential policy can promote financial stability.
As regards Brexit, with negotiations ongoing and less than five months to go until the United
Kingdom's departure from the European Union, it is essential to prepare for all possible
outcomes, including a no-deal scenario. While the direct trade effects of a hard Brexit would be
limited for the euro area as a whole, Ireland is more exposed due to its very close trade relations
with the United Kingdom. We also see limited overall risks to euro area financial stability. Without
sufficient mitigating action, however, a cliff-edge Brexit could have an adverse impact in certain
areas of centrally cleared derivatives markets.
Sources of risk from outside the EU have grown since May. A stronger US dollar and heightened
trade tensions triggered renewed stress in a number of emerging market economies.
Financial integration and the deepening of EMU
Thanks to our collective efforts at the European and national level, we have come a long way
since the start of the financial crisis. However, to strengthen our economies and preserve
financial stability, we need to go further. Let me highlight in particular some of the concrete steps
in the area of financial integration that we need to take at the European level.
First, we need to complete the architecture of the banking union. The benefits of having a euro
area supervisor are clear when we look at banks' strengthened balance sheets. Still, more needs
to be done to reduce the risks for citizens as both taxpayers and depositors and to break the
remaining link between banks and national governments. In addition to the adoption of banking
package which is currently under negotiation among EU legislators, a genuine banking union
needs further regulatory harmonisation, for instance through greater reliance on Regulations
instead of Directives. In particular, unwarranted national options and discretions still stand in the
way of a level playing field for banks. At the same time, we need to establish a common backstop
to the Single Resolution Fund and lay the groundwork for the creation of an effective European
Deposit Insurance Scheme. Significant steps in these areas are a precondition for a truly
integrated euro area banking system and single money. The transmission of the ECB's monetary
policy remains at risk of being hampered in crisis situations as long as levels of depositor
confidence differ across the euro area.
The second thing we need to do is build a true single market in capital. Diversified capital
markets play an important role in sharing risks and smoothing private consumption over time.
For this reason, the ECB has been a strong supporter of the European Commission's plan for a
capital markets union. To be robust, the capital markets union needs effective regulation and
supervision, for example in relation to investment firms and clearing. Not least given the United
Kingdom's imminent departure from the EU, we need to make concrete progress on this agenda
and complement it with an ambitious, longer-term vision.
Conclusions
I would like to end by mentioning that recent Eurobarometer data show that support for the euro
stands at a record high of 77% among euro area citizens and a large majority believe that their
country's membership of the EU is a good thing. Support for the European project is particularly
strong in Ireland, where with 88% of citizens the single currency enjoys the highest level of
support in the EU.
Europe has to repay this trust.
We face important global challenges that are naturally causing concern among the people of
Europe, especially those who feel left behind. Common institutions and collaboration among
Member States give Europe a strong voice in the world. More importantly, they make it possible
for us to find effective answers to joint problems. In other words, we are stronger together. Thank
you for your attention.