mario draghi : plenary debate of the european parliament on the ecb ’ s annual report 2014 introductory statement by mr mario draghi, president of the european central bank, to the plenary debate of the european parliament on the ecb ’ s annual report 2014, strasbourg, 1 february 2016. * * * mr vice - president of the european parliament, mr vice - president of the commission, honourable members of the european parliament, we are undoubtedly at a point in time when the cohesion of europe is being tested. many of the challenges we must confront are european, or even global in nature. and these challenges demand a strong european response. i am therefore grateful to be back in this assembly, a symbol of the need for european debates and european solutions. today, we are discussing the annual report of the european central bank for 2014. in that year, the governing council adopted a series of measures to respond to the impairment of our monetary policy transmission channels and to the low inflation environment. these included two reductions in the key ecb interest rates, the announcement of targeted long - term refinancing operations and two purchase programmes for asset - backed securities and covered bonds. 2014 was also marked by the start of the activities of the single supervisory mechanism and the completion of the comprehensive assessment. but rather than looking backwards, allow me to focus on the challenges that still lie ahead of us. first, i will briefly explain our current monetary policy and why we will re - assess our stance at our march meeting. second, i would like to discuss the economic challenges we face and what it takes to address them. i am acutely aware that the focus of policymakers lies elsewhere for the moment. but let me be quite clear : economic success is also part of the solution in other fields. therefore, mitigating economic risks deserves to be high on the political agenda. the ecb ’ s monetary policy : working and still flexible it was about three years ago that inflation started moving away from the ecb ’ s medium - term inflation aim of below, but close to, 2 %. since october 2013, inflation has been below 1 %. throughout 2015 headline hicp inflation in the euro area was very low or even negative, remaining under the influence of low commodity prices, and euro area annual hicp inflation was estimated at 0. 4 % in january this year. in parallel to this trend, we had to continually revise our outlook for inflation : while at the start of 2015, our

staff was forecasting inflation to reach 1. 5 % in 2016 and 1. 8 % in 2017, in december they projected a rate of only 1 % for this year and 1. 6 % for 2017. against this backdrop, the ecb decided in december to act again. our assessment of the monetary policy stance had two parts. first, we noted that the measures put in place since the summer of 2014 had been very effective. the monetary stimulus that they introduced led to a broad - based easing of financing conditions, stimulated credit provision, and has since provided substantial support to the euro area recovery. without these measures, the euro area would have been in outright deflation last year and prices would have fallen at an even quicker pace this year. growth would have been significantly lower. bis central bankers ’ speeches second, while our measures were deemed effective, they were also judged to be insufficient in view of the deteriorating outlook for price stability. there was a concrete risk that without increasing the quantitative stimulus, the date by which inflation would settle around levels below, but close to, 2 % would once more be pushed back beyond any relevant definition of medium term. therefore we decided to recalibrate our monetary policy stance. we cut the deposit facility rate further to – 0. 3 %, we extended the envisaged end - date for our monthly purchases to the end of march 2017, while maintaining its conditionality on the inflation outlook, and we announced that we will reinvest the principal payments of our purchased assets once they mature, for as long as necessary. we also decided to continue conducting the main refinancing operations and three - month longer - term refinancing operations as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the last reserve maintenance period of 2017. since our meeting in early december, conditions have once more changed. a moderate recovery of the euro area economy is under way, driven mainly by domestic demand. but downside risks have increased again amid heightened uncertainty about emerging market economies ’ growth prospects, volatility in financial and commodity markets, and geopolitical risks. inflation dynamics are also tangibly weaker than we expected in december. while the most recent wave of disinflation is mainly due to the renewed sharp fall in oil prices, weaker than anticipated growth in wages together with declining inflation expectations call for careful analysis of the channels by which surprises to realised inflation may influence future price and wage - setting in