Benoît Coeuré: Interview with Bloomberg TV
Interview with Mr Benoît Coeuré, Member of the Executive Board of the European Central Bank,
and Bloomberg TV, conducted by by Ms Francine Lacqua on 25 January 2019.
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Benoît Coeuré, the ECB executive board member, joins us right here in Davos. Thank
you so much, Mr Coeuré, for joining us.
Good morning.
You flew in after the news conference in Frankfurt yesterday. Overall we heard
President Draghi talk about these risks to the downside, but how would you explain it in
your words? Why did we not foresee this?
We did foresee it, actually. The tone of our discussion yesterday was acknowledging that there is
quite a lot of uncertainty around, that a lot of the uncertainty is political, has political sources and,
first and foremost, global trade which is a politically-engineered uncertainty. We knew that growth
would have to slow down because it started from very high points back in 2017-18. But the
slowdown has surprised us. We have been surprised. We have to be very careful to monitor the
data and that's what we're doing now. We are analysing the data, trying to understand what's
going on, and in particular what we have to understand is the persistence of this shock to
eurozone growth. I would say: today the jury's still out.
When you talk about a shock to eurozone growth, how much of it is actually trade and
how much of it is actually internal slowdown?
A lot of it is trade. A lot of it comes from the outside. The Governing Council has said for months
that most of the downside risks come from the outside. Until yesterday we had said risks were
balanced or they were moving to the downside. Now, we say they have moved to the downside
because these risks to global trade have materialised.
What about Brexit?
First, the ECB is not part of the negotiations. I very much hope that it will yield results and that we
can find a solution. But it's not for us to discuss. What I would say is that there are substantial
risks to real growth in the United Kingdom, but also as a knock-on effect on the eurozone. So we
are not complacent about it, but the financial sector is now pretty well prepared for a no-deal
Brexit, if that were to happen, because there has been a lot of work.
But have companies actually prepared for a Plan B? If there is a no-deal Brexit, what
would it mean actually for growth in Europe? You say: systemically, we're okay...
Systemically we are okay. For the functioning of the financial sector, which is a lot in London, as
we know, I think most of the players are well prepared now.
Do you worry about a big shock, though, to PMIs, to GDP if there is a no-deal Brexit?
That would be a big shock to the UK economy. How much will it ripple around? We don't know
yet, but there would be an impact, of course.
Given this environment, can the ECB hike rates this year?
As I said, we are monitoring the data. We have this rate guidance: we say we are not going to
move before through the summer. We could change it, we could extend it. The market sends a
signal that it expects the rate hike to be much later than what we have said. It is part of the
functioning of our rate guidance; it shows that the rate guidance works well to anchor
expectations. It's too early to have the discussion because we are still (in the process of)
understanding the nature of the shock.
Are you comfortable with how the market took the President's comments yesterday?
Yes, we are. We've seen quite a lot of flattening of forward curves, even ahead of the Governing
Council, and that, in itself, provides financial accommodation, so it's part of the solution. We are
comfortable with it. If the market were to overreact, if at some point we see market expectations
which don't fit the way we see the economy, then we would have to react. We would adjust our
guidance; and we may have to do it at some point.
Would that be after March?
I don't know. It's a thought process and it's very much data driven.
What tools does the ECB actually, or could the ECB, deploy to counteract this
slowdown?
Looking back, any time we've had to adjust to a new environment, we've done so, either using
existing instruments or finding new instruments within our mandate, legally. We've been able to
do it. What we have today in our toolbox, as you know, is negative rates. It's rate guidance, which
we can adjust. And it's liquidity provision which, as you know, was part of the discussion
yesterday, even though, here again, it's way too early to take a decision.
Benoît Coeuré, talk to me about TLTROs. We heard from President Draghi yesterday that
the ECB will need to have a good monetary policy case to offer a new round of long-term
loans. The market is reading this as actually this is now less likely. Was that the
message?
No, the message is: there are different contingencies and we need to find the instruments, which
one is best fitted to the contingency we're seeing. TLTROs are about credit, right? It's not about
providing liquidity per se. There is a lot of liquidity in the system; excess liquidity is very ample in
the eurozone. The TLTROs are addressing what we call "impairments in monetary policy
transmission" - that is, they are supporting bank credit. We have to know if what we are seeing
now is an impairment or is likely to lead to an impairment of bank credit. Then, that could be an
instrument; it's very much - possibly - on the table, but depending on the contingency we are
facing. We need to think more deeply about it.
So do you have an idea what kind of conditions you would need to actually offer a new
round?
Obviously that's a lot about monitoring the way credit is extended by banks all around the
eurozone, globally and locally, and how much bank funding will impact the rate of lending to the
economy. So far, financial conditions remain very supportive of growth and that's also why we
didn't move yesterday; because we feel that the setup we have, the instruments we've deployed,
provide for a financial environment which is very supportive of the economy.
But do you worry that there's a risk that, basically, the banks will start repaying some of
these TLTROs this summer?
Yes, there is, and that's why we are starting that reflection now. But as the President said
yesterday, that has to be a monetary policy discussion. We are not going to have an LTRO or a
TLTRO for the sake of banks meeting the net stable funding ratio. That's not the business line we
are in; that's for banks to prepare for themselves.
But if they repay, that would tighten financial conditions?
Well, that's part of many business decisions that banks are taking. Our job is to look at the
outcome in terms of financial conditions and to see if it's proper in terms of the monetary
conditions that we want to see. So it's one issue. But it's only one argument among many others.
Are you talking to the banks to have an idea of what they'll do so that you can prepare
yourself also for the balance sheet?
Yes, we are, of course. And we are talking to our supervisory colleagues because that's what
they do: talk to banks.
Benoît Coeuré, how much does the personality of the President actually influence the
decision of the Governing Council?
Well, that's an interesting question. The Governing Council is a collegial body; the President has
to be in a position to filter information out of the diversity of the Governing Council and to build
consensus, which the Presidents so far have been able to do and have done very well. It is
important to be in a position to build consensus.
How can you see the dynamics of the Council changing once President Draghi leaves?
I don't see the dynamic of the Council changing very much. We have a diversity of individuals
and that's why we have a Governing Council. It's right because we need to filter out the diversity
of views in Europe. That's what the Governing Council is there for.
Benoît Coeuré, you said that you will continue to work for Europe and you don't exclude
any possibility. If you were offered the top job - President of the ECB - would you
accept?
Yes, who wouldn't? But it's really not for me to decide, it's not for me to reflect on. I want to
continue to be useful. There are many opportunities. I have a job at the ECB until the end of the
year, so it's really not for me to have that discussion.
Benoît Coeuré, thank you so much for joining us right here at of course Davos, World
Economic Forum 2019.