mario draghi : hearing of the committee on economic and monetary affairs of the european parliament introductory statement by mr mario draghi, president of the european central bank, at the econ committee of the european parliament, brussels, 29 may 2017. * * * mr chairman, honourable members of the economic and monetary affairs committee, ladies and gentlemen, it is a pleasure to be back speaking to your committee for the second regular hearing of this year. i am also pleased that you have chosen as the topic for today ’ s hearing the role of financial innovation. this is only one element in the broader process of innovation which is taking place in the economy. but it is a decisive one, given the essential role played by financial markets in resource allocation. before addressing this topic, let me first review the economic outlook and discuss the monetary policy stance. the economic outlook the economic upswing is becoming increasingly solid and continues to broaden across sectors and countries. real gdp in the euro area has expanded for 16 consecutive quarters, growing by 1. 7 % year - on - year during the first quarter of 2017. unemployment has fallen to its lowest level since 2009. consumer and business sentiment has risen to a six - year high, supporting expectations of a further strengthening of growth in the coming months. downside risks to the growth outlook are further diminishing, and some of the tail risks we were facing at the end of last year have receded measurably. the fact that domestic consumption and investment are the main engines driving the recovery makes it more robust and resilient to downside risks, which relate predominantly to global factors. despite a firmer recovery, and looking through the volatile readings in hicp inflation over recent months, underlying inflation pressures have remained subdued. domestic cost pressures, notably from wages, are still insufficient to support a durable and self - sustaining convergence of inflation toward our medium - term objective. for domestic price pressures to strengthen, we still need very accommodative financing conditions, which are themselves dependent on a fairly substantial amount of monetary accommodation. at its june monetary policy meeting the governing council will receive an update of the staff projections and a more complete information set on which it will be able to formulate its judgement on the distribution of risks around the most likely outlook for growth and inflation overall, we remain firmly convinced that an extraordinary amount of monetary policy support, including through our forward guidance, is still necessary for the present level of underutilised resources to be re - absorbed

sector. probably, the central bank will have to be able to choose a longer journey back to its target : it will have to accept more disinflation – and for longer – during the transition than it would tolerate in different balance sheet conditions. but at this point i start wondering : allowing a central bank a lot of discretion in the choice of the horizon for monetary policy is sometimes almost the same as giving it discretion in its choice of the monetary policy objective. and some memories come back to mind. in the 1970s monetary policy - makers were busy convincing their legislatures that rampant inflation was a temporary phenomenon. once the various structural forces at play – high pay demanded by unions, high oil prices charged by middle eastern countries, high food prices induced by drought – had faded, they claimed, inflation would return to more tolerable levels. of course those “ temporary factors ” never reversed and inflation persisted for a decade. inflation expectations had been fatally affected by a combination of high inflation and policy on the redistributive properties of monetary policy during the crisis, see goodfriend ( 2011 ). bis central bankers ’ speeches forbearance, and it took central bank resolve – and a painful global contraction – to break away from that equilibrium. i tell myself : we could imagine situations in which the same narrative – invoking structural forces to justify a monetary policy stance that tolerates a sustained deviation from the objective for too long – leads to a symmetric, durable scenario of uncomfortably low inflation, which eventually feeds itself. i do not have definite answers to all these questions. history is still being written as we speak. but let me share a few thoughts on these issues. what is the role of monetary policy in this process? maintaining a very accommodative policy stance for too long certainly carries severe risks. incentives for a timely balance sheet repair may be undermined and new imbalances may ultimately emerge. still, central banks will have to remain true to their mandates of ensuring price stability. this mandate should be interpreted as a symmetric mandate. too low inflation, or even deflation, for a prolonged period of time cannot be seen as consistent with price stability. the ecb ’ s policy framework there are clear limits to the leeway that we – central banks – can afford within our mandates. our medium - term price stability objective implies that we cannot stretch our policy horizon forever – even if the economy is undergoing a lengthy deleveraging process. monetary policy needs to act forcefully if