Benoît Coeuré: Interview with BFM Business TV
Interview with Mr Benoît Coeuré, Member of the Executive Board of the European Central Bank,
and BFM Business TV, conducted by Mr Stéphane Soumier on 12 March 2018.
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Mario Draghi talks about growth and he says that it is "strong and broad". And yet, the
European Central Bank remains infinitely prudent. Is growth in Europe as strong and
broad as all that?
It is strong, broad-based and inclusive, i.e. for the first time in a long time the whole of the euro
area is growing - all regions, all industrial sectors, and this is a new development, and very
positive. But, I should say first that inflation is not yet quite where we want it to be; the ECB's
projections put inflation at 1.4% for next year, which is good, but not close enough to 2%. So we
are not yet quite where we would like to be in terms of inflation. Second, the international risks
are significant, no doubt we'll talk about them in a moment. And third, this growth still depends
greatly, I would even say too much, on monetary policy. According to the ECB's econometric
models, with a growth rate of around 2.5% in the euro area, 0.5%, half a percentage point, is
dependent on monetary policy. In other words, had it not been for all the ECB's measures,
growth would not be 2.5% in the euro area, it would be 2%. And inflation would also be half a
point weaker.
Still, it's not as strong as that. In any case, the euro area still isn't able to progress at that
pace by itself today...
It is too early to declare victory. We are going in the right direction and the decision taken by the
ECB's Governing Council last week, which entails changing our communication very slightly to
show that we no longer intend to increase the scale of the central bank's monthly asset
purchases, represents a small communication step which shows our confidence. So confidence
is growing but we cannot yet declare victory.
Nevertheless the market is expecting the asset purchase programme to come to an end,
in September, December. What do you say to that? Is it still too early to say?
No, the end is inevitable. We have always said that quantitative easing would not last forever. We
have not yet discussed the when and how of its termination. But it's understood, of course, that
this is the direction in which things are going. What has not been discussed by the Governing
Council, however, is an increase in interest rates. It is very clear to us that short-term interest
rates those the ECB controls, will remain at very low levels, well beyond the horizon of our asset
purchases.
In other words, when Reuters says that the teams at the European Central Bank
presented to the Governing Council a scenario envisaging an increase in the rates in
mid-2019, it's a scenario that you are telling us you are ruling out?
This is what the markets are forecasting; the ECB's teams have Bloomberg screens like
everybody else. But the Governing Council has never discussed this.
Bloomberg or Reuters screens ... Let's respect the competition! Anyway, I'm looking at
the very latest indicators on our economic activity. Manufacturing in January was clearly
declining in France, two months of slight pressure in Germany, with the mid-February
PMI data also falling back a bit. Aren't we levelling off now? We have finished
accelerating and in fact the risk is that growth will fall back...
No, I don't think that it's worth being frightened by a few indicators. Growth is strong. There is a
kind of stabilisation of the growth rate, when we talk about what's called the "second derivative"
rather than growth itself. Maybe there's a stabilisation. In a way, that strengthens the belief that
there have to be structural measures which will take over from monetary policy. Of course, that
is the only possible direction.
You have described your policy as "giving time" to all the governments to attempt
reforms. Has France now taken the right road, the right direction?
Yes, but it's not the job of the ECB to give lessons to or to go into detail about what this or that
government must do, because we don't do politics, that's not for us. We have a mandate which
is very simple, which is to bring inflation in the euro area back towards 2%. And we're making
very good progress towards that, but we're not quite there yet. Then, growth drivers are needed,
growth in investment, in consumption, to take over from monetary policy. For that to happen,
economies have to perform better. What we see in France is in fact going in that direction. There
is a reform momentum which I think has two dividends: one for the French economy itself and
one for the euro area. France is a very large country, the second-largest country in the euro area.
The euro area needs reforms and having a strong French economy is also something that can
set off a series of dialogues, a series of reforms right across the euro area.
France is now taking the path of that reform momentum and growth momentum?
Yes, but I don't want to judge the ways and means of the French government, or the sequence of
reforms.
No, but as for the priorities set, labour law, public sector, then pensions, is it roughly
what you recommend?
Labour law, the functioning of the labour market, of course, including training, which is essential.
In that respect, the good news is that the government is vigorously tackling the reform of
vocational training. This is just as important, if not more so, than the flexibility of the labour market
and labour costs. For a very long time, emphasis was placed on the cost of labour in France. I
don't think now that the cost of labour is a major obstacle compared with Germany, compared
with France's competitors. However, we do have a training problem which shows up in all the
international surveys, and it is increasingly the priority. And the government is working on it.
There's been talk of a "budgetary jackpot" this weekend, how do you regard that? What
are your comments?
It's a slightly ridiculous discussion; I spent 15 years at the Ministry of Finance in a previous life.
Whenever France's deficit goes below 3%, there are some good souls who speak of a jackpot. If
you listen to them, it means that 3% will not be the upper limit of the deficit in France, it will be the
lower limit; it means that the deficit will never go below 3%. Government debt is 97% of GDP. If
our deficit remains at 3%, it is clear that we are heading towards serious debt sustainability
problems. So we shouldn't listen to those good people who think that there is a jackpot when the
deficit is a fraction below 3%. It is a bit like giving an alcoholic sweet to a former alcoholic, so to
speak, it seems to me a little dangerous.
And particularly because - and this is a centrepiece of your policy and I think it is the
main difficulty you face - the northern European countries, a number of countries there,
have been quite clear about the vague attempts at euro area reform put forward by
Emmanuel Macron. Why not, but first of all your public finances have to be balanced?
Not only public finances. Growth in France must become strong again, structural unemployment
must fall and public finances must be rebalanced. This is what our partners expect, and they're
right, it's in our interest.
And so there can be no far-reaching reform of the euro area as long as France has these
imbalances in its public finances?
This has long been the case. The lack of reforms or their hesitant nature in France has long been
an obstacle to the reform of the euro area. And French politicians are partly responsible. This
obstacle is being removed as there is a reform momentum and a downward dynamic in the
deficit. And therefore, the barriers are now increasingly in the euro area and take the form of a
state of mind which keeps on wanting to set the north and south of the euro area against each
other. There is a form of political fragmentation of the euro area which persists, even as the
economic fragmentation is declining. It's in the heads of euro area politicians who tend to regard
themselves as being from the north, the south, although these distinctions make no sense in that
we are all in the same boat.
But how come it doesn't make sense? These distinctions are real. Austerity is in the
north now; it's much weaker in the south. It is a reality and moreover you can see it in the
data.
No, I don't agree with you. Consider how Spain, a southern country, has reformed its labour
market.
The north believes that if the south is pulling through now, it's because of the efforts
the north has made, and it is having a training effect...
Say that to Spanish, Portuguese and Greek workers and employees. Tell them that if they are
pulling through it's thanks to the efforts of the north. It's thanks to their own efforts, which were
very difficult. So there has been a reform movement that in some instances has not been
completed, but which has been very painful for the countries of southern Europe, in the countries
that were in crisis, and now we have to go beyond that, to turn that page, to look to the future and
rebuild how the euro area functions. And to do that, we have to leave the north-south differences
behind us.
That means that, in the end, the only two problems remaining in the euro area today are
France and Italy...
I don't think that either France or Italy pose problems. France is doing what it has to do and the
French president is instilling a reform dynamic in the euro area. To that end, it won't be Germany
and France alone that are going to do it, so we also have to listen to what the Dutch, the Finns
and the Irish have to say. We have to listen to them, and we will do. But France has triggered this
reform momentum and we should be grateful to it for that. As for Italy, the election took place very
recently. There are political discussions going on right now, and it's not for me to comment on
political discussions...
No, but could this instability slow down the normalisation of monetary policy that you
want to implement?
No, we conduct monetary policy for the euro area, not for a particular country.
As for the Trump risk now, because it is like a new risk, and it was Mario Draghi who
talked about it like that, we saw this weekend that Europe as a whole, the euro area, and
Germany in particular, was the first target of the trade war that Donald Trump wants to
unleash, how do you view that?
That's the major risk today, it's true. We hope that it won't happen. But you have to look beyond
the aggressive vocabulary, beyond the bluster, and ask what is the risk of a trade war? It is a loss
of purchasing power for employees, workers, starting with those in the country that implements
customs duties. The first to suffer will be American workers, it's they who will lose their jobs. And
possibly in the rest of the world, depending on how Europe, Japan, China react. So it is
potentially a negative shock for the global economy.
One gets the feeling that Donald Trump is trying to test our unity. Do you have that
impression too? He has been attacking Germany, German cars...
I'm not going to venture to interpret what the President of the United States says...
But we do need to try to find out what it means, what the impact might be...
It's sometimes difficult, but it's true that this is an opportunity for Europe to demonstrate its unity. I
believe that this episode, like earlier episodes involving President Trump, reminds Eurosceptics
that Europe remains our best tool, our best form of defence, in a global economy which is fraught
with risk and danger. There are many ways in which Europe does not function well, and there is
a need for reform, for change. There are things that need to be radically reformed, but Europe is
the main weapon we have in this global landscape that is very dangerous, so it needs to be
preserved.
So we need to confront Donald Trump directly with all the forces we can mobilise.
We should stay away from the language of war; it's not about confrontation. We're not
confronting the American people, or the US economy. We're protecting a modus operandi for the
global economy that needs to be fair and balanced. And this fair and balanced modus operandi is
currently under threat, so we need to defend it.
Mario Draghi has said that if you impose tariffs on your allies, one may wonder who your
enemies are. There should be less escalation in the vocabulary used with Donald Trump
because we don't know where that might lead...
The United States is our ally.
Would a minister of finance for the euro area be a strong symbol and is that something
you would call for?
Yes, it's a strong symbol. Personally, I'm in favour of it. This is an idea that was put forward by
Jean-Claude Trichet in his speech in Aachen a few years ago, when he was awarded the
Charlemagne Prize. It would be a useful symbol provided it isn't an empty symbol. So, when the
heads of state and government of the euro area meet in June this year to find ways of giving new
momentum to the euro area, if the extent of the reforms is to make marginal changes to the
European Stability Mechanism and to give a position a new name, that won't achieve much. It
would be a useful symbol as long as the reality involves better coordination and more effective
instruments to protect the euro area.
So it's too early to talk about this at the moment? It needs to be the culmination of a
process.
It is the culmination of a process. You know, with the German government formally being set up
this week, the discussion has only just begun. We mustn't be too impatient.
Do you have the feeling that the European Central Bank has saved the euro since 2012?
The European Central Bank has done everything it could within its narrowly defined mandate.
And within that mandate, it has ensured the functioning of the euro area, it has dealt with
speculation, it has provided a boost that has allowed growth to pick up again and inflation to
move closer to 2%. And we did this when we could, within the mandate that we have been given
by the people of Europe.
Ultimately, though, the primary mandate of a central bank - and this perhaps has been
forgotten - is to defend the currency that it issues. Without the euro, there is quite
simply no longer any reason for it to exist, and everything that implies.
The Governing Council did what it did without hesitation and almost unanimously, but as has
often been said, we don't know what the next crisis will look like. Will we be able to do the same
thing when there is another crisis, which may beeven more severe, or very different in nature? I
don't know. But the euro area needs to give itself the means to be more robust, to respond to
crises separately from, and in addition to, anything the central bank might do. This is essential for
the future. There is no guarantee that we will again be able to do what we did in 2012. We will try
to do so again, of course, but each crisis is different, so the euro area needs to make itself
stronger.
In that context, you know that there is an ongoing debate which must seem unreal to you
but is real nonetheless regarding the nationality of the person who will succeed Mario
Draghi. This demonstrates that European unity is failing somehow if all anyone is talking
about is the nationality of Mario Draghi's successor.
Yes, you are completely right, this debate is symptomatic of an approach in the euro area that is
too often overly nationalistic, with everyone wanting to benefit from their membership of the euro,
when it is in fact a shared project. This is a discussion which per se holds no great interest. The
President should be chosen on the basis of his or her merits, of course. But it reflects attitudes
from the past. And it's exactly what we need to leave behind now.