Benoît Coeuré: Interview in Phileleftheros
Interview with Mr Benoît Coeuré, Member of the Executive Board of the European Central
Bank, in Phileleftheros, conducted by Mr Theano Theiopoulou on 9 November 2014.
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1. Why was banks' participation in the ECB's targeted longer-term refinancing
operations (TLTROs) lower than expected?
There are many reasons, including the disclosure of our comprehensive assessment of euro
area banks in October, for which reason they may have preferred to postpone their
borrowing to December. Having said this, the September outcome falls within the range of
take-up values we had expected, based on banks' behaviour under previous programmes.
2. The volume of non-performing loans in Cyprus is one of the highest in the
euro area. Moreover, lending to small and medium-sized enterprises (SMEs) entails
higher risk weights and, consequently, capital surcharges. How could banks
contribute to growth if lending is limited?
Household and corporate indebtedness in Cyprus is among the highest in the euro area. The
cost of risk remains elevated despite some recent improvements. In these circumstances,
deleveraging is a natural phenomenon. Nonetheless, banks should make good use of the
available lending opportunities and support viable borrowers. The comprehensive
assessment has confirmed that, on aggregate, the banking sector is adequately equipped
with capital and that constraints on lending arising from the situation of banks are becoming
less significant, both in Cyprus and the rest of the euro area.
3. By becoming the supervisor of euro area banks, is the ECB able to completely
eliminate the risk of financial crises in the future?
The assumption by the ECB of the responsibility for the supervision of euro area banks last
Tuesday marked an important step in European economic and financial integration, probably
the most important one since the introduction of the euro. It is a sharing of sovereignty but
also a gain of sovereignty: for example, the Cypriot member of the Supervisory Board of the
ECB will now have a say in the supervision of large euro area banks. Supervisory standards
will be harmonised as the ECB's banking supervision will draw on the best practices of the
participating countries, and the ECB will draw on the information gathered in the
comprehensive assessment to improve its supervision and foster convergence. Besides, the
Single Resolution Mechanism and the Bank Recovery and Resolution Directive, with its new
rules for dealing with banking crises entering into force in 2016, will make banks'
shareholders and investors more prudent and will better protect European taxpayers from
any misbehaviour by banks. That said, the best way to prevent crises in the future is to make
sure that our economies are prudently managed and that we don't let financial imbalances
develop, as was unfortunately the case before the crisis.
4. The biggest challenge that Cypriot banks have to face today is how to manage
and resolve the extremely difficult and sensitive issue of loan servicing...
The Cypriot economy needs a functioning banking sector which contributes to the economic
recovery. That can only be achieved if the non-performing loan issue is addressed forcefully.
For that, the structure of incentives would have to be changed, so that both borrowers and
lenders have a common interest in finding a pragmatic solution to the debt problem. The data
tell us that this is not happening. Conversely, non-performing loan levels are continuing to
increase. The reform of the foreclosure process is part of the change that has to come about.
In this respect, I welcome the Supreme Court decision on the unconstitutionality of the four
Parliamentary bills concerning the foreclosure law. This will help to contribute to the
reduction of non-performing loans in the banking system and recreate margins of manoeuvre
for banks to extend loans to profitable projects supporting the recovery.
5. The Cypriot economic adjustment programme was well on track until recently.
However, when political decisions touch upon legal reforms, such as foreclosures and
privatisation, delays arise amid reactions...
The work of the Cypriot authorities and their commitment to the programme has been
commendable. Those measures were painful and they have imposed a large short-term cost
on the economy and Cypriot society. But they have started to pay off. They have helped to
stabilise the economy and to improve the confidence of international investors. Institutional
and legal reforms are fundamental to enhancing the business environment and boosting
economic growth and job creation. This raises difficult political discussions in Cyprus, as in
any country, but such discussions are nonetheless indispensable, as this is about changing
the business model of the Cypriot economy, and we are in a democratic society.
6. Policy in the euro area is characterised by the lack of a common approach,
given that the ECB is willing to proceed, if necessary, with further monetary policy
easing and has called on those governments that have room for manoeuvre to loosen
their fiscal policies. By contrast, Germany is set against US-style quantitative easing
and urges continued budgetary discipline...
Given the latest indicators, we face the risk of a self-fulfilling loss of momentum in euro area
growth. The European Commission just marked down its growth forecast. There is a need for
forceful and consistent action on all three fronts: monetary, fiscal and structural policies. On
the monetary front, the ECB is playing its part: we have substantially eased our monetary
policy stance by putting forward several new monetary policy measures, such as negative
deposit rates and a credit easing package, including targeted loans to support lending to the
economy, and private-sector asset purchase programmes, which will last for at least two
years. Together with the series of targeted longer-term refinancing operations to be
conducted until June 2016, these asset purchases will have a sizeable impact on our
balance sheet, which is expected to move towards the dimensions it had at the beginning of
2012.
On the fiscal side, all euro area countries have room to make fiscal consolidation more
growth-friendly by cutting unproductive expenditures. Some countries have limited fiscal
space which can be used to boost their long-term growth potential. Most of them do not have
that space, and they should not jeopardise the credibility of our common fiscal framework.
Finally, all countries should act together in order to improve the productivity of the euro area
economies, which is lagging behind that of the US. This can be done by creating a business
climate that fosters private investment and the allocation of resources to competitive market
segments. The planned investment package of the new Commission could play an important
role in this process. I very much hope that the European Council will endorse it when they
meet in December.
7. With interest rates at zero levels, no other tools remain that could help
countries achieve faster growth for their economies. What are the challenges that the
governments are facing with regard to stimulating their economies?
The ECB is committed to taking additional measures if we face the prospect of inflation being
too low for too long. Price stability is the mandate which was entrusted to us by the people of
Europe, and we will fulfil it. But monetary policy cannot support growth in a long-lasting way.
Only an adequate mix of reforms and investment can do it. And it is a matter of urgency.
8. What are your comments on the recent controversy with the Governor of the
Central Bank of Cyprus?
I don't have specific comments to make on that matter, but let me say that Governor
Georghadji is a trusted member of the Governing Council of the ECB and has worked hard
for the well-being of Cyprus. After reading what the Government spokesman said on Monday
I am pleased to see that there is no disagreement between the Governor and the
Government and that the issue is abating.