Benoît Coeuré: Interview in the Leading European Newspaper Alliance -
LENA
Interview with Mr Benoît Coeuré, Member of the Executive Board of the European Central
Bank, in the Leading European Newspaper Alliance - LENA, conducted by Mr Dominique
Berns (Le Soir), Ms Anja Ettel (Die Welt) and Ms Manon Malhère (Le Figaro), and published
on 11 November 2015.
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How many bankers have you met this week?
You'll have an answer next February, when we will begin publishing the meeting calendars of
the members of the ECB's Executive Board on a regular basis. This will give you access to
the list of my meetings in November 2015. The decision to regularly publish the meeting
calendars of the Executive Board members follows on from other initiatives that aim to make
the ECB more transparent, in particular publishing the accounts of monetary policy
discussions and the new, clearer guidelines on public speaking engagements.
Regarding the meeting calendars, weren't you pushed into publishing them by the
media, to some extent?
No, we were already considering doing it. It was a natural decision for us because it reflects
current standards for large public institutions, in particular the European Commission. If
publishing our meeting calendars enables us to avoid misunderstandings, so much the better
- it shows that it is a useful thing to do. Public debate thus enables us to improve how we
operate.
You really didn't think that meeting people from BNP Paribas on the very same day
that the Governing Council took a major monetary policy decision would arouse
suspicions about your independence?
Do you really think there's a risk there? Our independence towards banks is well known. The
person in question was passing through Frankfurt that day and I can assure you that we
didn't discuss monetary policy. To be clear: in such meetings we never divulge sensitive
information or indications about the future direction of monetary policy. That is against our
rules.
Publishing your meeting calendars may not be enough. Why not implement a "quiet
period" like the Bank of England, during which no meetings are allowed?
If we need to tighten our rules because the public has a negative perception of how we
conduct ourselves, then we will tighten them. Central banks are public institutions and
people's perception of what we do is important. But we're not going to stop talking to the
market. Communicating with market players is a key part of monetary policy, and is all the
more important given that the ECB is implementing new, unconventional monetary policy
instruments.
The financial markets seem to think that the ECB will boost its very accommodative
monetary policy of purchasing assets, or "quantitative easing", from December... Are
they right?
The decision has not been taken. The debate is ongoing. The euro area's recovery is on
track and gaining momentum, but still weak, as inflation expectations are not rising and core
inflation has levelled out. In December the Eurosystem staff macroeconomic projections will
inform our decision.
Given that the ECB has already sent strong signals to the financial markets, aren't you
obliged to act now?
No. The decisions we take are based on the economy, not financial markets. We are
currently asking ourselves the following question: are some factors, such as the fall in the
price of raw materials, temporary? Or rather, will they prevent in a lasting way inflation from
returning towards 2%? If the answer to the second question turned out to be yes, additional
measures would be taken. In December we will take a decision based on the information we
have available to us.
In December the US Federal Reserve System (Fed) will take a decision on whether to
maintain its key rates at zero or increase them. Will their decision influence yours?
It will have no direct impact on our decision. Whatever the Fed decides, our monetary policy
framework (zero rates, liquidity, "forward guidance" and asset purchases) allows us to keep
interest rates low, no matter what happens in the rest of the world. Our policy protects the
interest rate curve for the euro area from external shocks. What interests us above all is what
the Fed's decision tells us about the US economy. If the Fed were to raise its rates, it would
be a sign that growth and employment indicators are robust in the United States. This,
essentially, would be good news for Europe.
Despite all of the ECB's efforts to inject liquidity, large companies in the euro area are
sitting on mountains of cash and not investing...
Monetary policy is supporting the recovery in demand and has removed a key obstacle to
investment - financing. But obstacles remain on the supply side. Weak investment, even
though financing costs are low, shows that there is a dearth of projects that are sufficiently
profitable in the long term. This reveals a lack of productivity and innovation. The ECB
cannot do much about that. On top of this, there are external risks: slowing global growth,
particularly in large emerging economies.
In other words, it's pointless to expect that an eventual increase in quantitative easing
will be enough to stimulate investment...
Quantitative easing, by pushing back the horizon for monetary policy action, removed the
financing obstacle. Lending rates to enterprises have fallen significantly, including in the
stressed euro area countries. What we can do, what we must do, is maintain confidence in
inflation returning towards our objective of 2%. The ECB, within its mandate, cannot accept
inflation stabilising in the vicinity of 1%.
You regularly underline the risks of inflation and growth being too low. But there are
always risks - the sky could fall in! And many people in Germany, as elsewhere, on
seeing that they are hardly earning anything on their savings, are wondering if we are
ever going to see an end to quantitative easing.
Today, the risks for growth and inflation are tilted to the downside. The best service that the
ECB can provide to the citizens of the euro area is to fulfil its mandate so that inflation
returns towards 2%, which requires the economy to pick up again, jobs to be created and
exports to the euro area to find solvent outlets. We are aware that the low interest rates also
have negative effects, notably on savings, and could pose risks to financial stability if they
were to stay low for too long. We don't want this monetary policy to last too long, but we will
apply it for as long as necessary in line with our mandate.
In other words?
Governments need to take action and implement the necessary reforms in order to
consolidate confidence and growth, and to demonstrate a credible fiscal policy. If the euro
area policy for growth rests exclusively on the ECB's shoulders, things will end badly!
Admittedly, we are nowhere near that point. But we sense that there is a temptation to rely
entirely on the ECB.
What key measures do governments need to implement specifically in order to restore
growth?
It is my personal opinion that, depending on the country concerned, reducing public
expenditure or reallocating it towards more productive expenditure is a necessary condition
for growth. Governments must take strong and concerted action in order to stimulate private
investment. Europe also needs to have a clear prospect of strengthening the single market,
which is still insufficiently integrated as far as services are concerned. Moreover, markets
need to open up to the rest of the world, and I am thinking here of the negotiations on the
Transatlantic Trade and Investment Partnership. That will create opportunities for our firms.
Another key aspect in my view is tax stability for firms.
Some economists are of the view that governments should revive growth through
expansionary fiscal policies. That's what the Governor of the Oesterreichische
Nationalbank said recently. Do you share this opinion?
Everything possible must be done, so long as it always complies with the Stability and
Growth Pact (European fiscal rules).
There is very little room for manoeuvre...
Indeed. Some countries have some fiscal leeway which they can use, but we don't advise
those without any room for manoeuvre to enter into expansionary policies. The European
Commission must apply the Stability and Growth Pact to small and large countries in the
same way.
Another effect of quantitative easing is that certain countries, such as Italy, are today
borrowing at negative rates. Is this desirable and in everybody's interest?
Sometimes we hear it said that the ECB should have a less accommodative monetary policy
because it has created false incentives for governments. This reasoning is not in line with the
spirit and the letter of the European Treaties. The ECB is not - and must not be - an
instrument of fiscal policy. But we say to the countries in question that they should make the
most of the current situation and of the gains stemming from the drop in interest rates to
reduce their indebtedness rather than to spend more.
Finally, do you think that the ECB will exit this state of emergency before you come to
the end of your term?
As far as the financial state of emergency is concerned, yes I do. The challenge now is to
achieve long-term growth.
So, the answer is no?
Let's just say that, increasingly, the challenges that Europe is facing are unrelated to
monetary policy.
Let's move on to the topic of Greece. Social discontent is on the rise, the negotiations
between the Tsipras government and the "quartet" are already stalling over some
points of the new financial rescue plan. Isn't there a risk that the coming months will
be turbulent?
No one said it would be easy. The third programme, which was approved by the Greek
Parliament, is extremely ambitious. It covers areas that previous governments had not dared
to tackle, which call into question existing benefits, for example the battle against vested
interests in some sectors. Nevertheless, a positive dynamic seems to have taken hold since
July and is starting to bear fruit. Interest rates have fallen and money is flowing back into the
Greek banks. And this will speed up once the banks are recapitalised, which must take place
before the end of the year. But it won't be easy.