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, Frankfurt am Main, 8 March 2018.
* * *
Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press
conference. We will now report on the outcome of today's meeting of the Governing Council.
Based on our regular economic and monetary analyses, we decided to keep the key ECB
interest rates unchanged. We continue to expect them to remain at their present levels for an
extended period of time, and well past the horizon of our net asset purchases.
Regarding we confirm that our net asset purchases,
non-standard monetary policy measures,
at the current monthly pace of €30 billion, are intended to run until the end of September 2018, or
beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment
in the path of inflation consistent with its inflation aim. The Eurosystem will continue to reinvest
the principal payments from maturing securities purchased under the asset purchase
programme for an extended period of time after the end of its net asset purchases, and in any
case for as long as necessary. This will contribute both to favourable liquidity conditions and to
an appropriate monetary policy stance.
Incoming information, including our new staff projections, confirms the strong and broad-based
growth momentum in the euro area economy, which is projected to expand in the near term at a
somewhat faster pace than previously expected. This outlook for growth confirms our confidence
that inflation will converge towards our inflation aim of below, but close to, 2% over the medium
term. At the same time, measures of underlying inflation remain subdued and have yet to show
convincing signs of a sustained upward trend. In this context, the Governing Council will continue
to monitor developments in the exchange rate and financial conditions with regard to their
possible implications for the inflation outlook. Overall, an ample degree of monetary stimulus
remains necessary for underlying inflation pressures to continue to build up and support headline
inflation developments over the medium term. This continued monetary support is provided by
the net asset purchases, by the sizeable stock of acquired assets and the forthcoming
reinvestments, and by our forward guidance on interest rates.
Let me now explain our assessment in greater detail, starting with the economic analysis. Real
GDP increased by 0.6%, quarter on quarter, in the fourth quarter of 2017, after increasing by
0.7% in the third quarter. The latest economic data and survey results indicate continued strong
and broad-based growth momentum. Our monetary policy measures, which have facilitated the
deleveraging process, continue to underpin domestic demand. Private consumption is supported
by rising employment, which is also benefiting from past labour market reforms, and by growing
household wealth. Business investment continues to strengthen on the back of very favourable
financing conditions, rising corporate profitability and solid demand. Housing investment has
improved further over recent quarters. In addition, the broad-based global expansion is providing
impetus to euro area exports.
This assessment is broadly reflected in the March 2018 ECB staff macroeconomic projections
for the euro area. These projections foresee annual real GDP increasing by 2.4% in 2018, 1.9%
in 2019 and 1.7% in 2020. Compared with the December 2017 Eurosystem staff
macroeconomic projections, the outlook for real GDP growth has been revised up for 2018 and
remains unchanged for 2019 and 2020.
The risks surrounding the euro area growth outlook are assessed as broadly balanced. On the
one hand, the prevailing positive cyclical momentum could lead to stronger growth in the near
term. On the other hand, downside risks continue to relate primarily to global factors, including
rising protectionism and developments in foreign exchange and other financial markets.
According to Eurostat's flash estimate, euro area annual HICP inflation decreased to 1.2% in
February 2018, from 1.3% in January. This reflected mainly negative base effects in
unprocessed food price inflation. Looking ahead, on the basis of current futures prices for oil,
annual rates of headline inflation are likely to hover around 1.5% for the remainder of the year.
Measures of underlying inflation remain subdued overall. Looking forward, they are expected to
rise gradually over the medium term, supported by our monetary policy measures, the continuing
economic expansion, the corresponding absorption of economic slack and rising wage growth.
This assessment is also broadly reflected in the March 2018 ECB staff macroeconomic
projections for the euro area, which foresee annual HICP inflation at 1.4% in 2018, 1.4% in 2019
and 1.7% in 2020. Compared with the December 2017 Eurosystem staff macroeconomic
projections, the outlook for headline HICP inflation has been revised down slightly for 2019 and
remains unchanged for 2018 and 2020.
Turning to the monetary analysis, broad money (M3) continues to expand at a robust pace, with
an annual rate of growth of 4.6% in January 2018, unchanged from the previous month, reflecting
the impact of the ECB's monetary policy measures and the low opportunity cost of holding the
most liquid deposits. Accordingly, the narrow monetary aggregate M1 remained the main
contributor to broad money growth, continuing to expand at a solid annual rate.
The recovery in the growth of loans to the private sector observed since the beginning of 2014 is
progressing. The annual growth rate of loans to non-financial corporations strengthened to 3.4%
in January 2018, after 3.1% in December 2017, while the annual growth rate of loans to
households remained unchanged at 2.9%. The pass-through of the monetary policy measures
put in place since June 2014 continues to significantly support borrowing conditions for firms and
households, access to financing - notably for small and medium-sized enterprises - and credit
flows across the euro area.
To sum up, a cross-check of the outcome of the economic analysis with the signals coming
from the monetary analysis confirmed the need for an ample degree of monetary
accommodation to secure a sustained return of inflation rates towards levels that are below, but
close to, 2% over the medium term.
In order to reap the full benefits from our monetary policy measures, other policy areas must
contribute decisively to raising the longer-term growth potential and reducing vulnerabilities. The
implementation of structural reforms in euro area countries needs to be substantially stepped
up to increase resilience, reduce structural unemployment and boost euro area productivity and
growth potential. Against the background of overall limited implementation of the 2017
countryspecific recommendations, as communicated by the European Commission yesterday, greater
reform effort is necessary in the euro area countries. Regarding the increasingly
fiscal policies,
solid and broad-based expansion calls for rebuilding fiscal buffers. This is particularly important
in countries where government debt remains high. All countries would benefit from intensifying
efforts towards achieving a more growth-friendly composition of public finances. A full,
transparent and consistent implementation of the Stability and Growth Pact and of the
macroeconomic imbalance procedure over time and across countries remains essential to
increase the resilience of the euro area economy. Deepening Economic and Monetary Union
remains a priority. The Governing Council urges specific and decisive steps to complete the
banking union and the capital markets union.
We are now at your disposal for questions.
* * *
I notice that you have changed somewhat your monetary policy statement, dropping the
commitment to increase the size of quantitative easing, if necessary. Could you explain
the reasons for that, especially against the backdrop of trade war talks that we have
been hearing and somewhat slowing down of survey indicators for the recovery?
Second question on Latvia, on the affairs surrounding Mr Rimsevics, a Governing
Council member. Do you see the fact that Latvian authorities are effectively blocking a
Governing Council member from attending Governing Council meetings as an
infringement of central bank independence? If not, why not?
Also do you feel the Latvian authorities have been not fully cooperating with the ECB on
this affair?
Draghi: First of all, the first question: let me just read to you the sentence we have removed. By
the way, it was a sentence introduced in 2016, when we cut our monthly purchases from €80 to
€60 billion. Thinking about that, you can just figure out, how different the situation was at that
time. The sentence says: if the outlook becomes less favourable or if financial conditions
become inconsistent with further progress towards a sustained adjustment in the path of
inflation, we stand ready to increase the asset purchase programme in terms of size and/or
duration. So, what we did was to remove the explicit reference to the likelihood of an increase in
the pace of purchases in the near future.
We shouldn't forget that we have kept the other reference to such a possibility when it says: the
Eurosystem will continue to reinvest the principal payments for an extended period of time after
the end of net asset purchases and in any case for as long as necessary. All in all, if you read
this decision - by the way the decision was unanimous - that's what it is. It's substantially a
backward-looking decision without signals or implications for either our expectations or our
reaction function. We still expect the key ECB interest rates to remain at their present levels for
an extended period of time and well past the horizon of our net asset purchases. It also hasn't
changed our reaction function. We confirm that our net asset purchases at the current monthly
pace of €30 billion are intended to run until the end of September 2018, or beyond if necessary -
and in any case until the Governing Council sees a sustained adjustment in the path of inflation
consistent with its inflation aim. That's what the decision is and that's what it is. And it was
unanimous, as I said.
Now, if I may elaborate on the second question about Latvia. Well, on Latvia we really don't have
enough information. That's why today we are sending a letter to the European Court of Justice.
The Governing Council has decided, again unanimously, to ask for clarification by the Court of
Justice of the European Union whether individual security measures imposed on the Governor of
Latvijas Banka by the Latvian Anti-Corruption Authority on 19 February 2018, have had the effect
of relieving him from office and they comply with Union law, in particular with Article 14.2 of the
Statute. We are asking the ECJ for a clarification on the present situation.
You mentioned that the removal of the pledge to increase quantitative easing was
unanimous. In the run-up to that unanimous decision, did any policymaker call for a more
radical change, perhaps dropping a link between the APP and inflation or taking out the
option to extend the duration of the APP?
The second question is on trade: could the US administration's planned tariffs by hurting
the eurozone's economy slow down the return of inflation to the ECB's target?
Draghi: Well, on the first question, as I said, it was a unanimous decision and there wasn't much
discussion about other possible changes in monetary policy for the coming months. Just so that I
can give you a sketchy summary of the discussion, it was a kind of a fairly, in a sense, usual
blend of confidence, persistence and patience. Of confidence - because the latest incoming data
on growth reduced the variance of the path of inflation converging to our inflation aim. But also
persistence and patience - and here of course you have different views, some people are more
confident, some people are less confident and therefore they stress the persistence and
patience. There was a somewhat repeated reference to the uncertainty surrounding potential
output growth path.
The reason for that is that first of all, we discussed several times about how complex the
measurements of unemployment are. But also there is a fact that strong growth may produce
stronger potential output growth as well. If you look at the past structural reforms, the increases
in labour supply, the increase in participation rates, the increase in productivity, basically all this
increases the uncertainty about the potential output growth path and therefore about the size of
the slack in the economy. So, the policy will continue to be reactive, basically. These are some
parts of our discussion.
Another part was devoted to assessing the progress of - well, the possible progress we've made
- about inflation, where we said that basically, inflation, headline inflation, will hover around 1.5%
for the remaining part of the year. The underlying inflation measures remain subdued. Even
though we have strong growth, we still have subdued inflation and our mandate is in terms of
price stability, so victory cannot be declared yet.
Finally, you asked about monetary policy. The exchange was about emphasising all the pillars of
our monetary policy. We have the flows of net purchases. We have the stock that it is
accumulating. We have the reinvestment policy for an extended period of time, as I've just read.
Especially we have the forward guidance on interest rate path, and they were all important.
I am sorry, you also asked the question about trade. The immediate spill-over impact of the trade
measures, just if you have a static estimate, it's not going to be big. But what strikes me is that
whatever convictions one has about trade, we - and certainly the Governing Council is on this
line - we are convinced that disputes should be discussed and resolved in a multilateral
framework, that unilateral decisions are dangerous. Also there is a certain, I would say, worry or
concern about the state of international relations, because if you put tariffs against your allies,
one wonders who the enemies are. I think these are two general considerations that are quite
relevant.
Now, on assessing the final impact of these measures many factors come into play. First of all,
is there going to be retaliation or not? Second, what's going to be the response of the exchange
rate? So far we've seen that whenever there was a threat of putting tariffs towards another
country, it was the dollar that would appreciate. But things can be different from time to time.
Third and most important is an aspect of all - I wouldn't call them yet trade wars, but certainly of
all the trade exchanges that we've seen - and that's the effect on confidence. The effect on
confidence is very difficult to assess, estimate, forecast. If it is a negative effect on confidence,
that's going to be negative on both inflation and output.
There is concern in Brussels about the fate of pensions and the labour laws in Italy.
What's the view of ECB?
Draghi: Well, we haven't discussed this today, really. We were so focused on our decision on
monetary policy that we didn't discuss this. But the point is generally speaking that fiscal
sustainability is of utmost concern in countries which have high debt.
I also have two questions. The first one: you've dropped the easing bias on QE. Does
that also mean that you would argue that the risks to the inflation outlook have become
broadly balanced similar to growth? Or would you still say that the risks to the inflation
outlook are tilted to the downside?
The second one is a very different one. You are ECB president for more than six years
now and member of the Governing Council for even longer. What would you say? What
makes a good ECB president? What are the most important skills?
Draghi: Well, the second question is easy to answer: I let others judge, it's not up to me.
On the first and we were always - and it goes back in tradition - not to discuss risks about
inflation. We've discussed risks about growth. The point here is basically that we see headline
inflation driven often by energy prices, food prices and other components that are more volatile.
Then we look at underlying inflation to judge the robustness of the convergence. These
measures of underlying inflation are still - some of them actually ticked up a little. Others, in
general are subdued. The picture isn't much different from last time, really. In this sense, I said
before that the decision we took today is obviously using incoming information like, as I said, the
reduced variance. Otherwise it's really backward-looking; it doesn't send any new signal.
Two questions: First of all, in a recent speech by Benoit Coeuré he seemed to make two
remarks. The first was that the eurozone is less at risk of a taper tantrum in the US when
it comes time to draw a close to any new bond purchases under QE. The second seemed
to be in that in boom markets at least, the flow of QE no longer matters; it's a lot more
about the stock. I'd be interested in hearing yours and Mr Constâncio's views on these
two points that Mr Coeuré made.
My second question is on the Latvian issue and how it pertains to the division of labour
between the European Central Bank and the national central banks. You said at the
European Parliament hearing recently that the permission to grant emergency loans was
better lying with the European Central Bank than, as it does at present, with the national
central bank. Was there a discussion of that today or was that planned? Are there any
other areas on which you think the powers should lie with the European Central Bank
rather than national central banks or other national authorities?
Draghi: Let me answer first to the second question. Now, this experience we had certainly is
giving some lessons we ought to really reflect on. First of all, what has been the role of the ECB
in this so far? The ECB has cooperated, has informed and has requested and this is what the
ECB does everywhere in these situations with the anti-money laundering, with the national
competent authorities. As you said, as you heard many times, the ECB is not competent in
money laundering and it doesn't have investigative powers. Having said that, the current situation
as far as anti-money laundering is concerned is not satisfactory. What you would like to see are
two things: more cooperation between national competent authorities on money laundering; more
exchange of information; more coordination. There is a spectrum here: it can go from having a
regular and frequent formalised exchange forum or even go up to a centralised authority.
The second aspect is the cooperation between national competent authorities and supervisors,
both national supervisors and the SSM. And that's key. That's key because the money laundering
activities as far as banks are concerned have produced, unavoidably, reputational and legal
consequences. Therefore they create reputational and legal liabilities and therefore the
supervisor is going to be called in to react to these risks or prevent them from happening. That's
what's so important; the cooperation between the competent authorities and the supervisor.
Now, a partly different thing is about the Emergency Liquidity Assistance. I have expressed in the
European Parliament a view that I share with many Governing Council members and many
board members, but it's not something that can be implemented immediately. My view - which
by the way we had this experience, we had other experiences - where the conclusion can't be
other than - ELA should be centralised. Basically, it should be given through a process where the
Governing Council participates and discusses and, in the end, decides. This is not possible
legally now so it's an evolution of the system that at present time I judge unsatisfactory and
needs to be changed.
Now, going back to your first question, first of all I don't think Mr Coeuré said flows don't matter.
Or that the stock matters a lot more...
Draghi: Okay, but you see how it makes a big difference whether they matter or they matter
slightly less than stocks. The first time that a reference to stock was made was at the end of
2015 in a press conference I had where there was, I remember, a vast disappointment about the
measures that the Governing Council had just decided and I pointed out that even though the
measures were probably not fulfilling your expectations, we still had the stocks that were going to
go up over the oncoming period of time. At that time, markets paid no attention whatsoever to
stocks. Now attention is on stocks. Now, the reason is not that there is actually more than a
trade-off; I would say that the two are complementary. And it's normal that this should be this
way. When the flows were huge and the stocks were small, the flows mattered more.
Now, gradually this has changed but this doesn't [mean] - that flows don't matter. In fact, flows at
the present time matter a lot also because of the sequence that we have in our monetary policy
decision that it's cast in stone whereby the interest rate path depends on the dates of the net
asset purchases programme. I think the discussion today showed that all four elements,
including the reinvestment policy but especially the forward guidance on interest rates, are
important.
Mr Draghi, you've played down the decision today to remove the easing bias, but the
Governing Council felt it necessary to leave it until now. What is it that you think has
changed in the last seven weeks to merit that move? It seems if anything the outlook has
got more uncertain.
Second question is on your role as ECB - your experience as ECB President. You have
been personally credited with a lot of the decisions that the ECB has made over the last
seven years. That reflects your ability to set the agenda in Governing Council meetings.
How much could a new ECB president with a different set of beliefs about QE, for
instance, take the ECB along a different course given your knowledge of how the
institution works?
Draghi: Let me answer the second question first. Listen, you keep on asking questions as if
tomorrow I'm going to leave. I still have quite some time before my mandate expires. I may be
willing to answer questions about myself at the date which is closer to the end of my mandate
than it is today.
The other question, as I said, it's fundamentally a backward-looking measure. What has
changed? Well, we had several revisions of the growth outlook and at the same time, we have a
narrowing of the convergence path, of the variance around the path, which basically explains why
in a sense we are confident. It confirmed our previous confidence. That was the discussion we
had. That's the main reason. Also if you read the words, these are really unlikely contingencies
now, the ones that would suggest that we would activate this easing bias. That was the reason
why we did it and why we did it today.
Markets seem to be very sensitive to any kind of news at the moment, for example as the
reaction to the December minutes showed. Would it not help to be a bit clearer on the
forward guidance to reduce the risk of such sudden market reactions?
My second question, a few weeks ago there were also some hiccups in the markets
because there were sudden fears of increasing inflation. How do you see that risk or the
risk of rising inflation expectations?
Draghi: The second answer is that the market in the United States reacted to a number about
inflation - which was falling by the way - and a number about nominal wage growth. In a sense
they reacted with a sharp market correction, which was in a sense amplified by the conditions of
financial markets, especially the stocks, especially the equity market. It was mostly limited to the
equity market and it was pretty short in terms of reaction. In Europe the situation is different. In
Europe we don't see wage growth of that amount, we don't see inflation rates of that amount. It's
just that the risk is different.
First one was on the sensitivity of...
Draghi: If we make exception for what's happening in the United States between market
correction, statements, various statements on trade and other issues, you would agree you don't
see much volatility in our financial markets in the eurozone. If anything, the volatility is mostly
caused by our own statements. This angst that everything should be clear in advance isn't
reflected in the markets. Let me add that the reason why we have these discussions is that there
are different states of mind regarding the new information. There is uncertainty about potential
output growth. There is uncertainty about the size of slack and this uncertainty is more present in
some members than in others. In some members there is a little less confidence and more
desire to wait for more data and to see. And in others, there is more confidence in the fact that
they would like to say things sooner rather than later.
I think that's the main difference. But so far whatever the difference is on when to say things, the
basic point is that the policy continues to remain reactive and not proactive.
You said today that there is a strong momentum in the European economy, but some
risks remain in the horizon. Do you mean that the political instability in some countries,
for example in Italy, could be a problem for European growth and also for stability in the
euro area?
Draghi: What we have seen in the past few cases of elections outcomes doesn't suggest that
markets reacted in a way that would undermine confidence. The reaction to the Italian elections
has been more or less the same as it has been to other elections, to other major political events,
where most observers were foreseeing sharp corrections or high volatility. That's what it is at this
point in time. That's not to underestimate the fact that protracted instability may undermine
confidence. As I said before, anything that undermines confidence is negative, has a negative
effect on both inflation and output. This was when I was discussing trade measures, but it
applies to all kinds of contingencies.
I'd like to ask a question about Germany and reform. The coalition agreement for the new
grand coalition could be seen as rolling back some of the labour market reforms that
were undertaken about ten years ago and helped produce the low unemployment that
you see in Germany today. Are you at all concerned not only about Germany but that
there may be some movement backward on reforms? Would that have any effect on
growth, your estimates of growth, and on monetary policy?
Draghi: It's a very broad question and therefore it's very difficult to answer. More generally what
one can say is that all the reforms that have increased productivity and growth ought to be left in
place. If these reforms had negative distributional consequences, producing a more inequitable
income or wealth distribution, these distributional effects ought to be taken care of. I think if there
is one aspect in which, generally speaking, policies not only in Europe I would say, but all over
the world, have been insufficient, was to take care of the distributional consequences of reforms
that basically were positive for growth, but not necessarily for equity.
Back to the Italian elections: aren't you worried about the fact that in one of the most
pro-European countries traditionally, the anti-European forces have gained more than
50% of the votes? What does this mean for the European project? Don't you think that it
could jeopardise even the euro area reforms? It's the third biggest country in Europe, in
the eurozone.
th
My second question is on this day, it's 8 March, it's Women's Day. Don't you think it is a
little bit sad, with all respect for Mr de Guindos, that there are always men appointed for
the ECB and that the presence of women in the Governing Council is still so rare?
Draghi: On the first question, I really don't want to comment. I can only say that the euro is
irreversible and progress on deepening - and I just read it in the introductory statement, where
the Governing Council's view about this can be found - the Governing Council says that
deepening Economic and Monetary Union remains a priority. The Governing Council urges
specific and decisive steps to complete the Banking Union and the Capital Markets Union.
Now, on what you said, certainly I think the gender balance ought to be improved. This ought to
happen at all levels. By the way, let me congratulate Mr de Guindos because the Governing
Council approved him. I am absolutely confident that he is going to be a very, very good
colleague for all of us.
As far as the ECB is concerned, there will be a press release because we are also working on
improving our gender balance situation. There will be a press release stating what sort of
initiatives we've undertaken and the board has approved recently. These initiatives are
undertaken because we've made significant progress since we set explicitly our targets - explicit
targets which had not been set before. Still, this progress is less than what we wished for. The
numbers now fall short of our interim targets.
We introduced the gender targets in 2013 and the interim now, right now - actually at the end of
last year - 27% of management positions were held by women compared with an interim target
of 29%. For the most senior management roles however, the share was 17% against an interim
target of 24% so we've got to do some work here. There have been, as I said, various initiatives.
One is basically to ask the head hunters to focus on gender in the recruitment process. Another
one is to sort of motivate the business managers to keep vacancies open and possibly until the
objective is reached. There are various issues that we've done some work on. There was also
another important point in that the recruiting panels will now have a considerable presence of
women. In a sense there are often unconscious biases that play a role. That's why it's necessary
to assure a, I would say, much more significant presence of women in the recruitment panels.
About the former Spanish Minister, Luis de Guindos, are you thinking about a re-profiling
of the portfolio of the responsibilities of the Governing Council members, having in mind
his profile, his political profile?
Draghi: We haven't really thought about this.
Let me bring you back what the market is expecting from the ECB. When are you
planning on giving perhaps more of an outlook to what's going to happen in the second
half of the year? Before, you also were at least slightly guiding us towards when we can
expect to get some more information.
My second question, let me bring you back to the trade aspect. You were saying that
there's even room that perhaps the economy might do better than expected in the
eurozone. But still isn't there also quite a huge amount of downward potential given the
trade distortions which could lay ahead and given how export oriented our eurozone
economy is?
Draghi: I'll answer immediately the second question. That's why we said that the risks to growth
are balanced in the sense that we have some upward risks domestically, but some downward
risks globally. That's what we refer to with that. It's quite clear that if we have retaliation, we may
have effects on confidence that I mentioned before. This would certainly at the very least
introduce higher uncertainty in the future growth path. More generally, I think there are two main
risks that one can see today. One is this one that I mentioned related to trade. There is also
another risk that is less mentioned these days. That's the risk of financial deregulation in other
major jurisdictions. We should not forget what the situation was before the crisis - in the years
leading to the crisis. Like today, we had an expansionary monetary policy which was justified by
the conditions at that time, as ours is justified by the conditions today.
But in the 10-12 years before the crisis there had been a systematic disruption of financial
regulation in the major jurisdictions. This combination, we may disagree whether the source was
predominantly one or the other, but certainly nobody would disagree about the combination of the
two. I would flag this as one major risk for the years ahead: that we repeat the same mistake.
Now, I should say also that the 'we' is not right in this context because in the eurozone both
national legislators and European legislators and