Introductory statement to the press conference - Mario Draghi, President of the ECB
Autor: Daniel Brandão de Castro | Publicado: 2012-08-02T11:10:00-03:00


Introductory statement to the press 
conference

Mario Draghi, President of the ECB,Vítor Constâncio, 
Vice-President of the ECB,Frankfurt am Main, 2 August 
2012

Ladies and gentlemen, the Vice-President and I are very pleased to 
welcome you to our press conference. We will now report on the outcome of 
today’s meeting of the Governing Council, which was also attended by the 
Commission Vice-President, Mr Rehn.

Based on our regular economic and monetary analyses, we decided to 
keep the key ECB interest rates unchanged, following the decrease of 25 
basis points in July. As we said a month ago, inflation should decline further 
in the course of 2012 and be below 2% again in 2013. Consistent with this 
picture, the underlying pace of monetary expansion remains subdued. Inflation 
expectations for the euro area economy continue to be firmly anchored in line 
with our aim of maintaining inflation rates below, but close to, 2% over the 
medium term. At the same time, economic growth in the euro area remains weak, 
with the ongoing tensions in financial markets and heightened uncertainty 
weighing on confidence and sentiment. A further intensification of financial 
market tensions has the potential to affect the balance of risks for both growth 
and inflation on the downside. 

The Governing Council extensively discussed the policy options to 
address the severe malfunctioning in the price formation process in the bond 
markets of euro area countries. Exceptionally high risk premia are observed in 
government bond prices in several countries and financial fragmentation hinders 
the effective working of monetary policy. Risk premia that are related to fears 
of the reversibility of the euro are unacceptable, and they need to be addressed 
in a fundamental manner. The euro is irreversible. 

In order to create the fundamental conditions for such risk premia to 
disappear, policy-makers in the euro area need to push ahead with fiscal 
consolidation, structural reform and European institution-building with great 
determination. As implementation takes time and financial markets often only 
adjust once success becomes clearly visible, governments must stand ready to 
activate the EFSF/ESM in the bond market when exceptional financial market 
circumstances and risks to financial stability exist – with strict and effective 
conditionality in line with the established guidelines. 

The adherence of governments to their commitments and the fulfilment 
by the EFSF/ESM of their role are necessary conditions. The Governing Council, 
within its mandate to maintain price stability over the medium term and in 
observance of its independence in determining monetary policy, may undertake 
outright open market operations of a size adequate to reach its objective. In 
this context, the concerns of private investors about seniority will be 
addressed. Furthermore, the Governing Council may consider undertaking further 
non-standard monetary policy measures according to what is required to repair 
monetary policy transmission. Over the coming weeks, we will design the 
appropriate modalities for such policy measures. 

Let me now explain our assessment in greater detail, starting with 
the economic analysis. On a quarterly basis, euro area real GDP growth 
was flat in the first quarter of 2012, following a decline of 0.3% in the 
previous quarter. Economic indicators point to weak economic activity in the 
second quarter of 2012 and at the beginning of the third quarter, in an 
environment of heightened uncertainty. Looking beyond the short term, we expect 
the euro area economy to recover only very gradually, with growth momentum being 
further dampened by a number of factors. In particular, tensions in some euro 
area sovereign debt markets and their impact on financing conditions, the 
process of balance sheet adjustment in the financial and non-financial sectors 
and high unemployment are expected to weigh on the underlying growth momentum, 
which is also affected by the ongoing global slowdown. 

The risks surrounding the economic outlook for the euro area continue 
to be on the downside. They relate, in particular, to the tensions in several 
euro area financial markets and their potential spillover to the euro area real 
economy. Downside risks also relate to possible renewed increases in energy 
prices over the medium term.

Euro area annual HICP inflation was 2.4% in July 2012, according to 
Eurostat’s flash estimate, unchanged from the previous month. On the basis of 
current futures prices for oil, inflation rates should decline further in the 
course of 2012 and be below 2% again in 2013. Over the policy‑relevant horizon, 
in an environment of modest growth in the euro area and well‑anchored long-term 
inflation expectations, underlying price pressures should remain moderate. 


Risks to the outlook for price developments continue to be broadly 
balanced over the medium term. Upside risks pertain to further increases in 
indirect taxes, owing to the need for fiscal consolidation, and higher than 
expected energy prices over the medium term. The main downside risks relate to 
the impact of weaker than expected growth in the euro area, in particular 
resulting from a further intensification of financial market tensions. Such 
intensification has the potential to affect the balance of risks on the 
downside.

Turning to the monetary analysis, the underlying pace of 
monetary expansion remained subdued. The annual growth rate of M3 stood at 3.2% 
in June 2012, slightly higher than the 3.1% observed in the previous month and 
close to the rate observed at the end of the first quarter. Overall, inflows 
into broad money in the second quarter were weak. Annual growth in M1 increased 
further to 3.5% in June, in line with the increased preference of investors for 
liquid instruments in an environment of low interest rates and high uncertainty. 


The annual growth rate of loans to the private sector (adjusted for 
loan sales and securitisation) declined to 0.3% in June (from 0.5% in May). As 
net redemptions of loans to non-financial corporations and households (both 
adjusted for loan sales and securitisation) were observed in June, the annual 
growth rates for loans to both non‑financial corporations and households 
(adjusted for loan sales and securitisation) decreased further in June, to -0.3% 
and 1.1% respectively. To a large extent, subdued loan growth reflects the 
current cyclical situation, heightened risk aversion and the ongoing adjustment 
in the balance sheets of households and enterprises, all of which weigh on 
credit demand. A considerable contribution of demand factors to weak MFI loan 
growth is confirmed by the euro area bank lending survey for the second quarter 
of 2012. This survey also shows that the net tightening of banks’ credit 
standards at the euro area level was broadly stable in the second quarter of 
2012, as compared with the previous quarter, for loans to both enterprises and 
households.

Looking ahead, it is essential for banks to continue to strengthen 
their resilience where this is needed. The soundness of banks’ balance sheets 
will be a key factor in facilitating both an appropriate provision of credit to 
the economy and the normalisation of all funding channels.

To sum up, the economic analysis indicates that price developments 
should remain in line with price stability over the medium term. A 
cross-check with the signals from the monetary analysis confirms this 
picture.

While significant progress has been achieved with fiscal 
consolidation over recent years, further decisive and urgent steps need to 
be taken to improve competitiveness. From 2009 to 2011, euro area countries, on 
average, reduced the deficit-to-GDP ratio by 2.3 percentage points, and the 
primary deficit improved by about 2½ percentage points. Fiscal adjustment in the 
euro area is continuing in 2012, and it is indeed crucial that efforts are 
maintained to restore sound fiscal positions. At the same time, structural 
reforms are as essential as fiscal consolidation efforts and the measures to 
repair the financial sector. Some progress has also been made in this area. For 
example, unit labour costs and current account developments have started to 
undergo a correction process in most of the countries strongly affected by the 
crisis. However, further reform measures need to be implemented swiftly and 
decisively. Product market reforms to foster competitiveness and the creation of 
efficient and flexible labour markets are preconditions for the unwinding of 
existing imbalances and the achievement of robust, sustainable growth. It is now 
crucial that Member States implement their country-specific recommendations with 
determination.