Mario Draghi: ECB press conference - introductory statement
Introductory statement by Mr Mario Draghi, President of the European Central Bank, and
Mr Vítor Constâncio, Vice-President of the European Central Bank, Brdo pri Kranju,
Slovenia, 4 October 2012.
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Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our
press conference. I would like to thank Governor Kranjec for his kind hospitality and express
our special gratitude to his staff for the excellent organisation of today's meeting of the
Governing Council. We will now report on the outcome of today's meeting.
Based on our regular economic and monetary analyses, we decided to keep the key ECB
interest rates unchanged. Owing to high energy prices and increases in indirect taxes in
some euro area countries, inflation rates are expected to remain above 2% throughout 2012,
but then to fall below that level again in the course of next year and to remain in line with
price stability over the policy-relevant horizon. Consistent with this picture, the underlying
pace of monetary expansion remains subdued. Inflation expectations for the euro area
continue to be firmly anchored in line with our aim of maintaining inflation rates below, but
close to, 2% over the medium term. Economic growth in the euro area is expected to remain
weak, with ongoing tensions in some euro area financial markets and high uncertainty still
weighing on confidence and sentiment. Our decisions as regards Outright Monetary
Transactions (OMTs) have helped to alleviate such tensions over the past few weeks,
thereby reducing concerns about the materialisation of destructive scenarios. It is now
essential that governments continue to implement the necessary steps to reduce both fiscal
and structural imbalances and proceed with financial sector restructuring measures.
The Governing Council remains firmly committed to preserving the singleness of its monetary
policy and to ensuring the proper transmission of the policy stance to the real economy
throughout the euro area. OMTs will enable us to provide, under appropriate conditions, a
fully effective backstop to avoid destructive scenarios with potentially severe challenges for
price stability in the euro area. Let me repeat again what I have said in past months: we act
strictly within our mandate to maintain price stability over the medium term; we act
independently in determining monetary policy; and the euro is irreversible.
We are ready to undertake OMTs, once all the prerequisites are in place. As we said last
month, the Governing Council will consider entering into OMTs to the extent that they are
warranted from a monetary policy perspective as long as programme conditionality is fully
respected. We would exit from OMTs once their objectives have been achieved or when
there is a failure to comply with a programme. OMTs would not take place while a given
programme is under review and would resume after the review period once programme
compliance has been assured.
Let me now explain our assessment in greater detail, starting with the economic analysis.
Euro area real GDP contracted by 0.2%, quarter on quarter, in the second quarter of 2012,
following flat growth in the previous quarter. Economic indicators, in particular survey results,
confirm the continuation of weak economic activity in the third quarter of 2012, in an
environment characterised by high uncertainty. We expect the euro area economy to remain
weak in the near term and to recover only very gradually thereafter. The growth momentum
is supported by our standard and non-standard monetary policy measures, but is expected to
remain dampened by the necessary process of balance sheet adjustment in the financial and
non-financial sectors, the existence of high unemployment and an uneven global recovery.
The risks surrounding the economic outlook for the euro area continue to be on the
downside. They relate, in particular, to ongoing tensions in several euro area financial
markets and the potential spillover to the euro area real economy. These risks should be
contained by effective action by all policy-makers in the euro area.
Euro area annual HICP inflation was 2.7% in September 2012, according to Eurostat's flash
estimate, compared with 2.6% in the previous month. This is higher than expected and
mainly reflects past increases in indirect taxes and euro-denominated energy prices. On the
basis of current futures prices for oil, inflation rates could remain at elevated levels, before
declining to below 2% again in the course of next year. Over the policy-relevant horizon, in
an environment of modest growth in the euro area and well-anchored long-term inflation
expectations, underlying price pressures should remain moderate. Current levels of inflation
should thus remain transitory and not give rise to second-round effects. We will continue to
monitor closely further developments in costs, wages and prices.
Risks to the outlook for price developments continue to be broadly balanced over the
medium term. Upside risks pertain to further increases in indirect taxes owing to the need for
fiscal consolidation. The main downside risks relate to the impact of weaker than expected
growth in the euro area, in the event of a renewed intensification of financial market tensions,
and its effects on the domestic components of inflation. If not contained by effective action by
all policy-makers in the euro area, such intensification has the potential to affect the balance
of risks on the downside.
Turning to the monetary analysis, recent data confirm the subdued underlying pace of
monetary expansion. In August the annual growth rate of M3 decreased to 2.9%, from 3.6%
in July. While this decline was mainly due to a base effect, monthly inflows were also
relatively contained. Conversely, strong monthly inflows into overnight deposits contributed to
a further increase in the annual rate of growth of M1 to 5.1% in August, compared with 4.5%
in July. This increase reflects a continuing high preference for liquidity in an environment of
low interest rates and high uncertainty.
The annual growth rate of loans to the private sector (adjusted for loan sales and
securitisation) declined in August to -0.2% (from 0.1% in July), reflecting a decrease in the
annual rate of growth of loans to non-financial corporations to -0.5%, from -0.2% in July. By
contrast, the annual growth of loans to households remained unchanged, at 1.0%, in August.
To a large extent, subdued loan dynamics reflect the weak outlook for GDP, heightened risk
aversion and the ongoing adjustment in the balance sheets of households and enterprises,
all of which weigh on credit demand. At the same time, in a number of euro area countries,
the segmentation of financial markets and capital constraints for banks restrict credit supply.
The soundness of banks' balance sheets will be a key factor in facilitating both an
appropriate provision of credit to the economy and the normalisation of all funding channels,
thereby contributing to an adequate transmission of monetary policy to the financing
conditions of the non-financial sectors in the different countries of the euro area. It is thus
essential that the resilience of banks continues to be strengthened where needed.
To sum up, the economic analysis indicates that price developments should remain in line
with price stability over the medium term. A cross-check with the signals from the monetary
analysis confirms this picture.
Other economic policy areas need to make substantial contributions to ensure a further
stabilisation of financial markets and an improvement in the outlook for growth. As regards
fiscal policies, euro area countries are progressing with consolidation. It is crucial that
efforts are maintained to restore sound fiscal positions, in line with the commitments under
the Stability and Growth Pact and the 2012 European Semester recommendations. A rapid
implementation of the fiscal compact will also play a major role in strengthening confidence in
the soundness of public finances. At the same time, structural reforms are as essential as
fiscal consolidation efforts and measures to improve the functioning of the financial sector. In
the countries most strongly affected by the crisis, noticeable progress is being made in the
correction of unit labour cost and current account developments. Decisive product and labour
market reforms will further improve the competitiveness of these countries and their capacity
to adjust.
Finally, it is essential to push ahead with European institution-building. The ECB
welcomes the Commission proposal of 12 September 2012 for a single supervisory
mechanism (SSM) involving the ECB, to be established through a Council regulation on the
basis of Article 127(6) of the Treaty. The Governing Council considers an SSM to be one of
the fundamental pillars of a financial union and one of the main building blocks towards a
genuine Economic and Monetary Union. We will formally issue a legal opinion in which we
will, in particular, take into account the following principles: a clear and robust separation
between supervisory decision-making and monetary policy; appropriate accountability
channels; a decentralisation of tasks within the SSM; an effective supervisory framework
ensuring coherent oversight of the euro area banking system; and full compatibility with the
Single Market framework, including the role and prerogatives of the European Banking
Authority. As the Commission proposal sets out an ambitious transition schedule towards the
SSM, the ECB has started preparatory work so as to be able to implement the provisions of
the Council regulation as soon as it enters into force.
We are now at your disposal for questions.