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, for the
Hearing at the Committee on Economic and Monetary Affairs of the European Parliament,
Brussels, 23 September 2013.
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Madam Chair,
Honourable members of the Committee on Economic and Monetary Affairs,
It is a pleasure for me to be back with your committee, shortly after the important vote of your
assembly on the SSM regulation. This vote has been preceded by intense interaction on the
interinstitutional agreement on accountability and transparency, and I would like to thank
President Schulz, your Committee and the negotiating team for the commitment to a
successful establishment of the SSM. Our two institutions share a common interest in a swift
and effective implementation of banking union. The draft inter-institutional agreement
ensures high standards of transparency and accountability, while safeguarding the protection
of confidential information. We will continue working with a similar constructive spirit in the
months ahead and hope that this will allow a swift set-up of the Supervisory Board.
Today, I will first review recent economic and monetary developments in the euro area. I will
then address the two topics that you have selected for our discussion: the impact of our
nonstandard measures; and the new tasks of the ECB in the reformed EMU architecture.
Economic and monetary developments
Since our meeting in July we have received positive data for the euro area economy.
Following six quarters of negative output growth, euro area real GDP rose by 0.3%, quarter
on quarter, in the second quarter of 2013. Measures of confidence and surveys of production
have given some support to the view that euro area economic activity should continue its
slow recovery in the current quarter, despite weak production data for July. Looking forward,
economic activity should benefit from a gradual improvement in domestic demand, supported
by the ECB's accommodative monetary policy stance and strengthening external demand for
euro area exports. However, unemployment in the euro area remains far too high, and the
recovery will need to be firmly established.
Annual euro area inflation declined to 1.3% in August 2013, down from 1.6% in July.
Underlying price pressures are expected to remain subdued, reflecting the broad-based
weakness in aggregate demand and the modest pace of the recovery. Medium to long-term
inflation expectations continue to be firmly anchored in line with price stability. The risks to
the outlook for price developments are expected to be still broadly balanced over the medium
term.
Monetary and, in particular, credit dynamics remain subdued. The annual rate of change of
loans to the private sector and, notably, to firms weakened further in July. Weak loan
dynamics continue to reflect the current stage of the business cycle but also heightened
credit risk and the ongoing adjustments in the balance sheets of borrowers and lenders. The
significant improvement in the funding situation of banks since the summer of 2012 has not
yet fed through into higher credit provision.
Review of recent monetary policy decisions
Against this background, the Governing Council has pledged to maintain monetary policy
accommodative for as long as necessary. In order to re-affirm and clarify this conditional
pledge, in a context of volatile money market interest rates, the ECB has introduced forward
guidance in July, stating that it expects the key ECB interest rates to remain at present or
lower levels for an extended period of time. This expectation, which has been reconfirmed in
August and September, is based on a subdued outlook for inflation extending into the
medium term, given the broad-based weakness in the economy and subdued monetary
dynamics. We will maintain the degree of monetary accommodation warranted by the outlook
for price stability and aim at promoting stable money market conditions.
To ensure an adequate transmission of monetary policy to the financing conditions in the
broader economy, it is essential that effective measures be taken to further reduce
fragmentation of euro area credit markets and to strengthen the resilience of banks where
needed. Monetary policy contributes to these objectives, but it can only address impairments
in transmission insofar as they are not related to more structural barriers.
By giving unlimited access to central bank refinancing against adequate collateral, our
nonstandard measures have been pivotal in relieving bank funding stress. The collateral
framework has been adjusted as necessary to ensure continued adequate risk protection for
the ECB's balance sheet, while at the same time promoting transparency, for example in
markets for structured finance products. Ensuring that solvent banks remain liquid has
contributed to avoiding an abrupt deleveraging which would have deeply damaged the
economy.
The Outright Monetary Transactions (OMTs) announced a year ago have prevented risks of
destructive scenarios with potentially severe challenges for price stability in the euro area.
OMTs serve as a fully effective backstop, within the ECB's mandate, and under formal
conditionality so as to preserve the appropriate incentives for governments to ensure fiscal
solvency and adopt those structural policies that can put the economy on a sustainable path.
Over the past twelve months, confidence in the euro area has returned. As a consequence,
fragmentation in euro area funding markets has been receding. This improvement owes not
only to the ECB's non-standard measures, but also to progress by governments in improving
the euro area governance and in pursuing reform agendas. Deposit outflows from stressed
countries have been reversed. Market access for banks has improved. Reliance on ECB
funding support has been steadily declining. These improvements are reflected primarily in
the on-going advance repayments of funds by several banks which had borrowed from the
ECB under the two three-year longer-term refinancing operations. While repayment of central
bank credit is certainly a sign of normalisation, the resulting reduction in excess liquidity can
reinforce upward pressures on term money market rates. We will remain particularly attentive
to the implications that these developments may have for the stance of monetary policy.
The tasks of the ECB in the reformed EMU architecture
Let me finally address the tasks of the ECB in the reformed EMU architecture. The
Maastricht set-up has been substantially strengthened since the start of the crisis. Europe
has reinforced fiscal and macroeconomic surveillance, created a permanent crisis
management mechanism, the ESM, and has improved its institutional framework. It is
moving swiftly towards the Single Supervisory Mechanism (SSM) for banks in the euro area.
A key priority of the agenda for the last quarter of 2013 is to complement it by a Single
Resolution Authority and Single Resolution Fund as proposed by the European Commission.
The ECB strongly supports the envisaged timeline for the establishment of the SRM by
1 January 2015, which adequately reflects the urgency.
Let me make a few remarks on the specific role of the ECB in the progress towards a
fullyfledged banking union. Already in 2010, with the decisive contribution of your institution, the
ESRB was created to oversee macro-prudential risks in the financial system as a whole. The
ECB ensures the Secretariat and thereby provides support to the ESRB. This year, a
furtherreaching step is being made with the imminent launch of the Single Supervisory Mechanism.
The ECB is fully committed to assume its new responsibilities and to discharge accountability
accordingly. Preparatory work has started in order to ensure that the new tasks are
performed at the highest level of effectiveness and professionalism.
While synergies between the new supervisory and existing monetary policy functions exist,
the ECB will strictly respect the principle of separation between monetary policy and banking
supervision, as foreseen in the SSM Regulation. Such separation will ensure that the ECB
will continue to fulfil its primary mandate of price stability in complete independence, in line
with the Treaty.
The effective separation of monetary policy and bank supervision decisions will be
implemented both at the decision making level and at the technical staff level. A separate
Supervisory Board will be created to draft and enforce decisions. Furthermore, deliberations
of the Governing Council on supervisory matters will be strictly separated from monetary
policy decisions. This separation between the two tasks will be underpinned by separated
agendas and meetings.
Finally, let me say a few words on the involvement of the ECB in the troika. Back in 2010, we
were asked by the Council to provide our technical expertise to the design and monitoring of
EU/IMF financial assistance programmes. In the meantime, the ECB has been allocated a
number of specific tasks by the ESM Treaty and EU secondary legislation. We act in liaison
with the Commission to provide technical advice, based on our expertise. As we have done
in the past, we remain ready to share our views on the situation in programme countries with
the European Parliament and to explain the advice provided as part of the troika. However, it
is important to recall that the Eurogroup is the body which actually decides whether to grant
financial assistance and under which terms.
Thank you for your attention. I am now looking forward to your questions.