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, 9 july 2018. * * * mr chairman, honourable members of the economic and monetary affairs committee, ladies and gentlemen, it is a pleasure to be back at the european parliament before your committee. since we last met, the ecb ’ s governing council has taken important decisions on the recalibration of our monetary policy stance after september this year. in my remarks today, i will outline these decisions and explain the assessment of the current economic environment on which they were based. following the recent euro area summit, i will also take this opportunity to discuss the future of our economic and monetary union ( emu ), pointing to priorities for the near term from an ecb perspective. economic and inflation developments the euro area economy grew by 0. 4 % during the first quarter of 2018, marking five years of continued economic expansion. underlying economic fundamentals remain solid, notwithstanding some moderation in growth at the beginning of the year. the labour market has improved notably over recent years. employment has risen by 8. 4 million since mid - 2013, and is growing in nearly all euro area countries. the unemployment rate stood at 8. 4 % in may, its lowest level since december 2008, and labour force participation now stands at an all - time high. looking ahead, the latest eurosystem staff macroeconomic projections foresee average annual growth of 2. 1 % in 2018, 1. 9 % in 2019 and 1. 7 % in 2020. while uncertainties related to global factors, including the threat of increased protectionism, have become more prominent, the risks surrounding the euro area growth outlook remain broadly balanced. of course, we continue to closely monitor developments. according to the eurostat flash estimate, headline inflation increased to 2. 0 % in june from 1. 9 % in may, reflecting higher rates of energy and food inflation. excluding these more volatile items, inflation decreased from 1. 1 % in may to 1. 0 % in june. as the economy continues to grow and slack is absorbed, supporting rising wages, underlying inflation is expected to pick up. recent wage agreements in several countries point to a continuation of these favourable dynamics. i will discuss the inflation outlook in more detail as i explain the monetary policy decisions taken by the governing council in june. the ecb

stabilise asset prices with the aid of the interest rate tool, if this would lead to a conflict of goals with respect to price stability. macroprudential tools are therefore needed in such a case, in order to counter imbalances on the real estate markets. i will return to this point in my comments on the role of central banks in financial stability. bis central bankers ’ speeches second, the question is raised as to whether the inflation targets set by most central banks might not be too low. the argument is that, in normal times, higher inflation targets would lead to higher nominal interest rates. this would open up the freedom of action for conventional monetary policy because the zero bound for interest rate policy would not be reached so quickly. this reasoning does not seem conclusive to me either. for instance, given the history of the struggle against inflation, it is rather bold to assume that wellanchored inflation expectations can simply be released and then immediately locked in at a desired higher level. as a rule, higher inflation is also associated with greater fluctuations in inflation. the costs of higher and strongly fluctuating inflation would have to be set against the alleged benefits, which, in fact, are likely to be minimal. the zero bound for interest rate policy has not proved to be an insurmountable obstacle for monetary policy. moreover, it is questionable whether an additional one to two percentage points of nominal interest rates would have provided sufficient freedom of action to avoid the zero bound in the crisis. third, it is suggested that further criteria be added to price stability – relating to employment and growth, for instance. growth and employment are, of course, essential economic parameters. our mandate takes them into account with its reference to the development of the economy. however, specific requirements with regard to growth and employment would, once again, raise expectations which the snb could not meet in the long term. instead, the goal of monetary policy with respect to the economy must be to reduce larger risks and alleviate extreme situations. a clear example of this was the massive appreciation of the swiss franc in the summer months of 2011, to which, as you will know, we responded with the minimum exchange rate. monetary policy is not suited to fine - tuning the economy, however. in practice, we have learned that it is impossible to conduct a monetary policy which responds immediately and in a differentiated manner to all kinds of business cycle fluctuation. neither can monetary policy replace a sustainable growth policy, a well