Benoît Coeuré: Interview with Europe 1
Interview with Mr Benoît Coeuré, Member of the Executive Board of the European Central Bank,
and Europe 1, conducted by Mr Jean-Pierre Elkabbach on 9 December 2016.
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So, the ECB has extended its large-scale purchases of private and public debt. A sum of
€80 billion was being injected per month, and it will be €60 billion per month until
December 2017, i.e. an extra nine months. The ECB is changing the amount and the
pace. Does that mean it's a warning to Member States to get ready to fend for
themselves?
First of all, it's a sign of confidence in the euro area economy. The fact that we can reduce the
quantity of purchases also shows our confidence in growth and in the ability of inflation to return
towards 2%, which is what we are aiming for.
And how high will inflation be? It's rising very slowly but it's not at 2%.
It's going to increase very slowly and we think it will reach around 1.7% by the end of our
projection period, so it will be approaching 2%. One way to sum up simply what the ECB's
Governing Council decided yesterday is to say that the euro area is recovering, it's getting better
but it still needs its medicine - an accommodative monetary policy with low rates. So we are
reducing the dose because things are improving but we are extending the prescription for longer.
The euro area is not cured, but...
It's not cured.
But it's doing less badly.
It's doing less badly.
But it can't take care of itself.
It's doing less badly but it's not doing well enough and that's why the prescription has been
extended, and there is indeed, as you say, a kind of "warning" or let's say...
An alert.
An alert, a message, which is as follows: all this won't last forever, it can't last forever, sources of
growth have to be found that don't depend on monetary policy. Long-term interest rates are going
to rise and economic actors must prepare themselves - governments in particular, which have
benefited greatly from the decline in rates. They must prepare for an environment in which
monetary policy will be less necessary and where growth will have to come from elsewhere.
That's why you are making no commitment for 2018.
We already have a commitment until the end of 2017, which isn't bad, as this makes it possible
to cover a whole year, when there will be many economic risks inside and outside the euro area,
as we well know.
But it was noted that Mario Draghi said yesterday that, if necessary, the policy would be
eased and liquidity would continue to be provided so as to improve the economy and
growth.
More will be done if necessary, of course, but the diagnosis that was reached yesterday by the
Governing Council is that a little less is necessary today because growth is stronger and Europe
is doing better.
And to make this quite clear, how much will the ECB disburse in, say, 2017?
The decision that was taken yesterday is to extend our asset purchases for a further nine
months by buying €60 billion per month of various financial instruments, which makes an
additional €540 billion euro. That's the decision: we will add €540 billion to the €80 billion per
month planned for the first three months of 2017, making €240 billion, so for the whole of 2017
that comes to slightly less than €800 billion extra compared with what we are doing already.
And since March 2015?
Asset purchases today come to around €1.5 trillion in total, so if we add 1,500 and 800 it means
that, at the end of next year, we'll be at just over €2.3 trillion.
Yes, and you realise that with this €2.3 trillion growth is good, average, but it's not
stronger. What would happen without this €2.3 trillion?
Well, without it, if the ECB wasn't doing what it's doing, growth would be between 0% and 1%,
inflation would be close to zero and unemployment wouldn't be falling in the euro area. But as
you know, unemployment is now falling fairly quickly in the euro area. It peaked at 13%, which is
very high, at the height of the crisis and now it's at 9.8%, so it's below 10%. The euro area has
created 4 million jobs in four years, that's not bad.
Yes, this morning we have to say "Thank you, ECB". The Banque de France has just said
this morning that it is lowering its growth forecast for France to 1.3% for 2016 and 2017,
and then to 1.4% in 2018 because of the worsening international environment. Is the
Banque de France more pessimistic than the ECB? Because you are saying that the
growth situation isn't bad in France.
No, we agree with the Banque de France - growth will be weaker in France than in the rest of the
euro area, unfortunately.
1.3%, 1.4%?
Yes, 1.3% in France, 1.7% in the euro area, so France is lagging behind in terms of growth.
And what does France have to do to recover or catch up with the other countries? When
you read the programmes of the candidates for the presidency, whether on the right or
the left, do you ever say to yourself that this one or that one would enable France to
catch up?
The ECB doesn't get involved in politics...
Of course.
So don't expect me to express a preference for one of the candidates.
However.
However, in general terms, we take note of this delayed growth and also the difficulty of reducing
the unemployment level in France which, despite starting to fall very recently, is struggling to dip
below 10%. So there is a need for labour market reform and reform of the services sector, as
that is where jobs are created, as well as a need to be more ambitious in opening up the
services sector, for example the regulated professions. In addition, and this is a message that
might not please people in France, but it's my duty to say it - reforms are also needed in terms of
fiscal balances. French debt is approaching 100% of GDP, and the deficit is still above 3%.
So you are issuing a warning to those candidates, whoever they may be, that are saying
they are willing to let deficits slip above 3%.
Yes, we must...
That's unacceptable.
The candidates for the French presidential election, whoever they may be, shouldn't think that,
when they take office, they will find a pot of money to spend or room for budgetary manoeuvre.
This room for manoeuvre doesn't exist and there is a risk that interest rates will rise. If and when
interest rates begin to rise, the debt burden will increase and the risk is that it will crowd out all
other government spending.
Benoît Coeuré...
It's a risk.
The ECB is no fortune teller or oracle, but no doubt you already know what 2017 will look
like?
As we see it, 2017 will be a year when activity accelerates. We are very confident about the
recovery in Europe.
But aren't there risks?
There are political risks just about everywhere, both within the euro area and outside it. But it isn't
the ECB's task to manage political risks. That's for politicians to deal with. It's up to us to draw
the economic conclusions. The euro area will still require some sort of financial protection to
navigate what will be a risk-filled 2017.
But when you talk about political risks, that means you see people going to the polls in
the Netherlands, France, Germany and, probably, Italy, as a risk.
That's not a risk, that's democracy.
So more precisely, what would you describe as a risk?
For us, the risk is that Europe comes under increasing strain and pressure from nationalists,
protectionists and sovereignists, who...
So you are worried about the rise of extremism and nationalism in Europe, and in all
countries, maybe even including France.
It's a concern for us in all countries, because it reduces our ability act jointly. Europe is strong
when its countries can act jointly. The problems Europe is facing - terrorism, security, the
refugee crisis, but also growth and employment - are problems that we have to overcome
together, and if each government turns inwards to focus on national interests and preparing for
elections, there will be no more capacity for acting as one.
And at the same time, Donald Trump is setting an example, a bad example, and the
United States will become inward-looking as well.
Geopolitical risk - the risk of a change in the international balance of power - is another risk
Europe will have to face next year.
Benoît Coeuré, should the whole of Europe be worried about a banking crisis? Because
among the uncertainties, and even though we were told that the banks were sound,
we're hearing that Deutsche Bank has problems, that Portuguese and Italian banks are
struggling, and that certain banks have to be recapitalised. What do you say to that?
I don't believe there will be a banking crisis, but I do think that European banks have profitability
problems and that there are too many banks in Europe, so reforms are needed.
In other words, some banks have to go.
Yes, but that's an issue for the banks themselves. Solutions must come, first and foremost, from
the private sector - banks are commercial enterprises and public money won't resolve the issue.
So banks will disappear, but not in France. Just to reassure us, how are the banks
doing?
As far as I'm aware, French banks are sound, that's what our banking supervision colleagues are
telling us.
And we need to make more out of Europe.
We need more Europe, otherwise we won't manage to solve our problems.