Mario Draghi: Hearing at the Committee on Economic and Monetary
Affairs of the European Parliament
Introductory statement by Mr Mario Draghi, President of the European Central Bank, before
the Hearing at the Committee on Economic and Monetary Affairs of the European
Parliament, Brussels, 23 September 2015.
* * *
Mr Chairman,
Honourable Members of the Economic and Monetary Affairs Committee,
Ladies and gentlemen,
During the summer break, our Union faced exceptional challenges. First, there was the long
and complicated discussion on the new adjustment programme for Greece. And now, in an
area very much outside the ECB's competence, there is the challenge of harbouring a large
number of refugees that had to leave their homes behind. Both these events - although very
different in nature - have shown again that Europe can only be strong if it acts in unity on the
basis of solidarity and cooperation. This is a lesson we should draw also for the challenges to
come.
In my remarks today, I would like to discuss two main topics: first, our assessment of the
latest economic developments and its implications for our monetary policy stance; second,
the proposals my colleagues and I presented in the Five Presidents' Report.
Economic developments and monetary policy
Turning to the first topic, let me give you an overview of the economic developments since
the last hearing in June. Over the summer, industrial production and other indicators of
economic activity showed signs of resilience. At the same time, the macroeconomic
environment has become more challenging. Our September macroeconomic projections
indicated a weaker economic recovery and a slower increase in inflation rates than we had
expected earlier this year. The inflation rate will remain close to zero in the very near term,
before rising again towards the end of the year. It will take somewhat longer than previously
anticipated for it to converge back to and stabilise around levels that we consider sufficiently
close to 2%.
Slowing growth in emerging market economies, a stronger euro and the fall in oil prices and
in commodity prices more generally are the main causes for these developments. As a
result, renewed downside risks to the outlook for growth and inflation have emerged. For
many of these changes, it is too early to judge with sufficient confidence whether they will
cause lasting slippage from the trajectory that we initially expected inflation to follow when we
decided to expand our asset purchase programme in January. More time is needed to
determine in particular whether the loss of growth momentum in emerging markets is of a
temporary or permanent nature and to assess the driving forces behind the drop in the
international price of commodities and behind the recent episodes of severe financial
turbulence. We will therefore monitor closely all relevant incoming information and its impact
on the outlook for price stability.
Our monetary policy measures in place, including the TLTROs, continue to have a
favourable impact on the cost and availability of credit for firms and households. They have
so far prevented a measurable tightening in financial conditions for the real economy despite
the recent surge in financial volatility. The sustained decline in the cost of borrowing is
strengthening domestic demand, by supporting durable goods consumption and stimulating
investment particularly by small and medium-sized businesses. This is making the euro area
economy more resistant to external shocks.
Should some of the downwards risks weaken the inflation outlook over the medium term
more fundamentally than we project at present, we would not hesitate to act. The asset
purchase programme has sufficient in-built flexibility. We will adjust its size, composition and
duration as appropriate, if more monetary policy impulse should become necessary.
I am aware that many of you closely scrutinise the potential effect of the low interest rate
environment on financial stability; ECON coordinators chose this as one of the topics for
today. Building on what I said during the hearing in March, let me underline that we are
closely monitoring risks to financial stability, but we do not see them materialising for the
moment. Should this be the case, macroprudential policy - not monetary policy - would be
the tool of choice to address these risks.
Here, we can build on the recent experience in developing these tools: over the last two
years, national authorities in Europe have been active in introducing macroprudential
policies, such as caps on loan-to-value or debt-to-income ratios to structurally strengthen the
mortgage market and to counter growth in real estate prices as well as mortgage loans.
Similarly, to strengthen the banking system, countries have introduced systemic risk buffers,
in addition to the buffers for globally systemic banks and other important institutions.
However, these macroprudential instruments mainly cover lending through the banking
sector. As there are signs that the financing of the euro area economy has tended to shift to
non-banks, the coverage of the macroprudential framework needs to start being extended to
the shadow banking sector so as to address risks in the financial sector as a whole.
I would also like to say a few words about Greece. During the last hearing in June, I called
for a comprehensive and fair agreement with Greece. In the following weeks, coming to such
an agreement was very difficult and necessitated tremendous efforts from all those involved.
But I am grateful that in the end, an agreement was reached. If it is completely implemented,
the new programme will put Greece in a position to grow again and to reap the full benefits of
participating in our common currency. The ECB contributed, in line with the provisions laid
out in the legal framework, to the negotiation of the programme. In addition, the ECB closely
monitored the provision of emergency liquidity assistance by the Bank of Greece according
to our rules, taking into account the prospect of a successful completion of the negotiations
at any point in time.
Completing EMU: following up on the Five Presidents' Report
The negotiations over the summer revealed again the fact that our institutional framework is
still not commensurate with the requirements of sharing one currency. In the Five Presidents'
Report that we published shortly after the last hearing, the five authors shared one common
conviction, namely that to make monetary union stable and prosperous, a more complete
union is necessary. But we did not only outline this common conviction; we also presented a
concrete roadmap showing how to attain this objective. This roadmap should now guide our
discussions in the months to come.
From our perspective, two elements are of particular importance. First, despite the best
efforts of all actors involved, the crisis has shown that monetary union requires a political
centre; a centre that can take the relevant fiscal, economic and financial decisions for the
euro area as a whole in a swift and transparent manner with full democratic legitimacy and a
clear set of responsibilities given to it by the legislators. It is in this spirit that I have called
repeatedly for a move from rules-based coordination to sharing of sovereignty within
common institutions. The report proposes a euro area treasury as one example. Such ideas
now need to be spelled out.
But we should also go further with regard to our policies. The report makes clear that EMU
will also need to strengthen its tools to manage and prevent the build-up of fiscal, financial
and other macroeconomic risks. In the last few years, notably with the reforms strengthening
the economic governance framework and setting up the ESM, SSM and SRM, we have
made important first steps in improving our crisis prevention and crisis management toolkit.
But we are not there yet.
Most imminently, we should move towards completing banking union through a common
backstop for the Single Resolution Fund and through a European deposit insurance scheme.
Both are essential to create a truly single banking system to mirror our single currency, and
both are crucial to underpin the credibility of banking union and finally achieve its initial
promise, namely breaking the bank-sovereign nexus, making the financial system more
resilient, and protecting the interests of taxpayers. At the same time - going beyond the
confines of the banking sector and banking union - we must make progress in developing a
capital markets union to enhance further the scope for cross-border private risk-sharing.
In addition, we need to prevent imbalances - whatever their nature - from developing into a
crisis environment. Therefore, we need a new convergence process based on the capacity of
our economies to withstand shocks and grow out of them quickly. This would imply not only a
more robust financial system as just described, but also stronger governance over structural
reforms and a tighter control of national fiscal policies. To ensure that Member States can
adjust to shocks, whatever their size, we will also need to add a layer of fiscal stabilisation at
the European level.
Taken together, these steps towards completing EMU would help to make the euro area not
only survive, but thrive and prosper.
On that note, I am now looking forward to your questions.