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, 17 november 2014. * * * mr chairman, honourable members of the economic and monetary affairs committee, ladies and gentlemen, it is a pleasure for me to be back again in this committee for the last hearing of 2014. this year has once again been a year of profound change for the euro area and for the union as a whole. it was a year of legislative and institutional progress on many fronts, as 2014 saw the birth of banking union with the agreement of the single resolution mechanism, the start of the single supervisory mechanism and the successful conclusion of the comprehensive assessment of banks ’ balance sheets. and it was indeed a challenging year for monetary policy, which saw the ecb take a wide range of measures to respond to the risks emanating from an increasingly sobering economic outlook. you have chosen two topics for today ’ s hearing, the relationship of financial fragmentation and monetary policy as well as the eurosystem ’ s collateral framework. i will touch on both these issues, but let me first run you through our current assessment of the economic outlook. economic and monetary developments the euro area growth momentum has weakened over the summer months and most recent forecasts have been revised downwards. at the same time, our expectation for a moderate recovery in 2015 and 2016 remains in place. demand should be supported by a number of factors. among them are our monetary policy measures and progress made in fiscal consolidation and structural reforms in some countries. at the same time, high unemployment, sizeable unutilised capacity, and the still ongoing and necessary balance sheet adjustments are likely to dampen the recovery. risks to the economic outlook continue to be on the downside. in particular, the weakening in the euro area ’ s growth momentum, alongside heightened geopolitical risks, could dampen confidence and, in particular, private investment. in addition, insufficient progress in structural reforms in euro area countries constitutes a key downward risk to the economic outlook. inflation in the euro area remains very low. in october, it stood at 0. 4 %. we expect it to remain at around current low levels over the coming months, before increasing gradually during 2015 and 2016. looking forward, we closely monitor risks to price developments. the latest monetary data point to subdued underlying growth in broad

to objective debate. and this kind of aggressive language is not limited to the media. politicians of various parties have referred to mario draghi as “ the gravedigger of german savers ” or “ the speculators ’ accomplice ”, who has “ continuously expropriated ” savers ( slide 7 ). this public reaction far exceeds the usual degree of criticism about economic policy decisions. and it seems that negative interest rates are the chief cause of these deep feelings of discontent. indeed, negative interest rates are a relatively recent addition to the central banking toolbox ( slide 8 ). the ecb first took the deposit rate for banks into negative territory in june 2014 and subsequently lowered it to - 0. 5 % in several steps. structural factors are the main driver of interest rates against this background, the question arises as to why the ecb needs to make use of negative rates, and why interest rates were much higher in the past? if inflation needs to be pushed up, central banks need to bring the real interest rate – that is, the nominal interest rate adjusted for inflation – below what is called the “ real equilibrium interest rate ” – the rate at which all factors of production are at full capacity and inflation is stable. the level of the real equilibrium rate is determined by a number of structural factors, such as a country ’ s demographic situation or capacity to innovate. the real equilibrium interest rate cannot be directly observed and instead has to be estimated. and almost all estimation methods show that the real equilibrium interest rate in the euro area has fallen markedly over the past 20 years ( slide 10 ). indeed, many estimates have even been showing negative values in recent years. this suggests that the supply of capital is matched with relatively low demand – in other words that the desire to save is meeting with a comparatively low propensity to invest. germany offers a prime example of this savings surplus. the vast and enduring current account surplus means that in germany much more is being saved than invested. the central bank, however, steers the nominal rate of interest – that is the sum of the real interest rate and expected future inflation. if the real equilibrium interest rate and inflation are both strongly positive, the central bank has considerable scope to stimulate the economy by cutting rates. but if the real equilibrium rate is close to zero or even negative, that scope is greatly reduced because monetary policy is constrained by the zero lower bound. and so you can see that low equilibrium interest rates create problems for