Introductory statement to the press

conference (with Q&A)

Mario Draghi, President of the EC,
!ran"furt am Main, # $anuary %&'(
Jump to the transcript of the questions and answers
Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press
conference. Let me wish you all a Happy ew !ear. I would also li"e to ta"e this opportunity to
welcome Latvia as the eighteenth country to adopt the euro as its currency. #ccordingly, $r
%im&'vi(s, the )overnor of Latvi*as +an"a, ,ecame a mem,er of the )overning -ouncil on .
January /0.1. 2e will now report on the outcome of today3s meeting of the )overning -ouncil.
+ased on our regular economic and monetary analyses, we decided to "eep the "ey EC
interest rates unchanged. Incoming information and analysis have continued to confirm our
previous assessment. 4nderlying price pressures in the euro area are e5pected to remain su,dued
over the medium term. In "eeping with this picture, monetary and credit dynamics remain
su,dued. #t the same time, inflation e5pectations for the euro area over the medium to long term
are firmly anchored in line with our aim of maintaining inflation rates ,elow, ,ut close to, /6.
7uch a constellation continues to suggest that we may e5perience a prolonged period of low
inflation, to ,e followed ,y a gradual upward movement towards inflation rates ,elow, ,ut close
to, /6 later on. #gainst this ,ac"ground, the )overning -ouncil strongly emphasises that it will
maintain an accommodative stance of monetary policy for as long as necessary, which will assist
the gradual economic recovery in the euro area. #ccordingly, we firmly reiterate our forward
guidance that we continue to e5pect the "ey 8-+ interest rates to remain at present or lower
levels for an e5tended period of time. #s previously stated, this e5pectation is ,ased on an
overall su,dued outloo" for inflation e5tending into the medium term, given the ,road-,ased
wea"ness of the economy and su,dued monetary dynamics. 2ith regard to money mar"et
conditions and their potential impact on our monetary policy stance, we are monitoring
developments closely and are ready to consider all availa,le instruments. 9verall, we remain
determined to maintain the high degree of monetary accommodation and to ta"e further decisive
action if required.
Let me now e5plain our assessment in greater detail, starting with the economic ana)ysis. %eal
):P in the euro area rose ,y 0..6, quarter on quarter, in the third quarter of /0.;, following an
increase of 0.;6 in the second quarter. 2hile developments in industrial production data for
9cto,er point to a wea" start to the fourth quarter, survey-,ased confidence indicators up to
:ecem,er have improved further from low levels, overall indicating a continuation of the
gradual recovery in economic activity. Loo"ing at /0.1 and /0.<, output is e5pected to recover
at a slow pace, in particular owing to some improvement in domestic demand supported ,y the
accommodative monetary policy stance. 8uro area economic activity should, in addition, ,enefit
from a gradual strengthening of demand for e5ports. =urthermore, the overall improvements in
financial mar"ets seen since the summer of /0./ appear to ,e wor"ing their way through to the
real economy, as should the progress made in fiscal consolidation. In addition, real incomes have
,enefited recently from lower energy price inflation. #t the same time, unemployment in the
euro area remains high, and the necessary ,alance sheet ad*ustments in the pu,lic and the private
sector will continue to weigh on economic activity.
>he ris"s surrounding the economic outloo" for the euro area continue to ,e on the downside.
:evelopments in glo,al money and financial mar"et conditions and related uncertainties may
have the potential to negatively affect economic conditions. 9ther downside ris"s include higher
commodity prices, wea"er than e5pected domestic demand and e5port growth, and slow or
insufficient implementation of structural reforms in euro area countries.
#ccording to 8urostat3s flash estimate, euro area annual HI-P inflation was 0.?6 in :ecem,er
/0.;, compared with 0.@6 in ovem,er. >his outcome was ,roadly as e5pected and reflected
lower services price inflation. 9n the ,asis of prevailing futures prices for energy, annual
inflation rates are e5pected to remain at around current levels in the coming months. 9ver the
medium term, underlying price pressures in the euro area are e5pected to remain su,dued. #t the
same time, inflation e5pectations for the euro area over the medium to long term continue to ,e
firmly anchored in line with our aim of maintaining inflation rates ,elow, ,ut close to, /6.
>he ris"s to the outloo" for price developments continue to ,e seen as ,roadly ,alanced over the
medium term, with upside ris"s relating to higher commodity prices and stronger than e5pected
increases in administered prices and indirect ta5es, and downside ris"s stemming from wea"er
than e5pected economic activity.
>urning to the monetary ana)ysis, data for ovem,er support the assessment of continued
su,dued underlying growth in ,road money A$;B and credit. #nnual growth in $; was ,roadly
unchanged at ..<6 in ovem,er, after ..16 in 9cto,er, following two consecutive declines in
7eptem,er and #ugust. #nnual growth in $. remained strong at C.<6, reflecting a preference
for liquidity, although it was ,elow the pea" of ?.D6 o,served in #pril /0.;. #s in previous
months, the main factor supporting annual $; growth was an increase in the $=I net e5ternal
asset position, which continued to reflect the increased interest of international investors in euro
area assets. >he annual rate of change of loans to the private sector remained wea". >he annual
growth rate of loans to households Aad*usted for loan sales and securitisationB stood at 0.;6 in
ovem,er, ,roadly unchanged since the ,eginning of /0.;. >he annual rate of change of loans
to non-financial corporations Aad*usted for loan sales and securitisationB was -;..6 in ovem,er,
following -;.06 in 9cto,er. 9verall, wea" loan dynamics for non-financial corporations
continue to reflect their lagged relationship with the ,usiness cycle, credit ris" and the ongoing
ad*ustment of financial and non-financial sector ,alance sheets.
7ince the summer of /0./ su,stantial progress has ,een made in improving the funding situation
of ,an"s. In order to ensure an adequate transmission of monetary policy to the financing
conditions in euro area countries, it is essential that the fragmentation of euro area credit mar"ets
declines further and that the resilience of ,an"s is strengthened where needed. >he forthcoming
comprehensive assessment ,y the 8-+ will further support this confidence-,uilding process. It
will enhance the quality of information availa,le on the condition of ,an"s and result in the
identification and implementation of necessary corrective actions. # timely implementation of
further steps to esta,lish a ,an"ing union will help to restore confidence in the financial system.
>o sum up, the economic analysis indicates that we may e5perience a prolonged period of low
inflation, to ,e followed ,y a gradual upward movement towards inflation rates ,elow, ,ut close
to, /6 later on. # cross*chec" with the signals from the monetary analysis confirms this picture.
#s regards fisca) po)icies, it is important not to unravel past efforts ,ut to sustain fiscal
consolidation over the medium term. =iscal strategies should ,e in line with the fiscal compact
and should ensure a growth-friendly composition of consolidation which com,ines improving
the quality and efficiency of pu,lic services with minimising distortionary effects of ta5ation.
2hen accompanied ,y the decisive implementation of structura) reforms, this will further
support the gradual economic recovery in the euro area and have a positive impact on pu,lic
finances. %eforms in product and la,our mar"ets and a rigorous enactment of 7ingle $ar"et
policies warrant particular focus to improve the outloo" for economic growth and to foster *o,
creation in an environment of high unemployment.
2e are now at your disposal for questions.
* * *
Question: Mr Draghi, I noticed that, in your introductory statement, you have changed the
language a bit to place greater emphasis on the accommodative nature of your monetary
policy stance. You emphasise this accommodative nature, and you firmly reiterate your
forward guidance. Might this change in language signal that you consider the recent rise in
money market rates unwarranted !r could you perhaps e"plain what might have prompted
that change
My second #uestion is on li#uidity operations. $ome of your colleagues recently appear to
have suggested that it might be difficult to devise an operation that would target funds to the
real economy, and I was %ust wondering where the debate on that issue stands at the moment
Draghi+ !es, you are right. 2e have used firmer words to indicate the strength in our forward
guidance, which ,asically means that we reiterate our decisiveness to act as needed. #nd we
,elieve that current mar"et developments are o"ay, ,ut we thin" that there are two scenarios that
would cause us to actE one is an unwarranted tightening of the short-term money mar"ets, and the
other one is a worsening of our medium-term outloo" for inflation. >hat, ,asically, is what this
firmer language is addressing.
9n your second point, developments in e5cess liquidity have attracted a great deal of attention.
+ut let me reiterate once again that it is very, very difficult to draw conclusions on a relationship
F a sta,le relationship F ,etween figures on e5cess liquidity and the 89I#. Let me give you
some figures hereE if we loo" at the figures of ;0 :ecem,er /0.;, we have e5cess liquidity in the
order of G/D1 ,illion and the 89I# standing at // ,asis points. If we ta"e the figures of C
January /0.1, i.e. those recorded one wee" later, we have G/DC ,illion of e5cess liquidity, while
the 89I# stood at only .0 ,asis points. ow, one could, of course, say this is related to
technical mar"et factors at the year-end, to a technical development, ,ut you would see the same
outcome and come to the same conclusion, if you underta"e a somewhat ,roader comparison. If
you loo" at the e5cess liquidity recorded on .@ :ecem,er /0.., you will see e5cess liquidity
standing at around G;00 ,illion and the 89I# at <D ,asis points. Let us then move to .< $ay
/0.;E e5cess liquidity was G;0; ,illion, i.e. roughly the same amount as on .@ :ecem,er /0..,
,ut the 89I# was only ? ,asis points. It is thus very, very difficult to draw the conclusion that
there is a sta,le relationship ,etween the two varia,les.
Question: &ut my second #uestion was whether you discussed an '()! and how to structure
it
Draghi+ #s usual, we discussed all possi,le instruments that might cope with these two ,road
scenarios and our discussion will continue, is ta"ing place as usual.
Question: If I could %ust press you on the last point you made. *hen you talk about this
readiness to act and all available tools, can you give us a sense of what these tools are,
whether these are traditional interest rate cuts, deposit rates, the '()!s, #uantitative easing.
*hat is in your toolkit, and what would happen if the conditions that you have laid out were
to be met and more easing was to be re#uired +nd my second #uestion is on banking union:
how concerned are you about the ade#uacy of the public backstops for the resolution of any
problem banks !r, if there are holes in the asset #uality review, and if the money is not there,
is there a risk that this maybe undermines confidence, rather than mere confidence,building
e"ercises
Draghi+ 9n the first pointE we have several instruments that we can use and our choice will
depend on what actually happens. 7ome of these instruments would more easily address certain
developments in the short-term money mar"ets, while others would ,e ,etter suited to address a
,roader worsening of our medium-term outloo". 7o, I thin" that it is pointless at this stage to
speculate on which instrument we would use. +ut let me ,e a,solutely clear on a more general
matterE we have a mandate to maintain price sta,ility, in ,oth directions. >hus, all instruments
that are permitted ,y the >reaty would ,e eligi,le for use ,y the )overning -ouncil. Let me
ma"e this point a,solutely clear.
9n your second question, were you referring to the pu,lic ,ac"stops related to the outcomes of
the asset quality review, or were you referring to the single resolution mechanism A7%$BH
Question: Yes, both.
Draghi+ #nd what leads you to thin" that there are no such ,ac"stops in placeH >here has ,een a
solid commitment ,y leaders, which has ,een confirmed ,y the 8cofin -ouncil and ,y the
8urogroup, so that all governments have ,asically committed themselves to provide these pu,lic
,ac"stops that would ,e put in place according to esta,lished regulations, which means ,asically
that all the list of creditors will have to ,e ,ailed-in, and so on and so forth. >he rules on state aid
would thus have to ,e complied with. 7o I thin" there is an e5plicit commitment that I fran"ly
have no reason to call into question.
Question: -resident Draghi, given the ongoing weakness in lending that you mentioned in
your introductory statement, would you say that the need to undertake the asset #uality review
.+Q)/ has delayed the recovery in lending, because of banks seeing the need to tidy up their
balance sheets +nd, if you do recognise that, then is there anything you can do to mitigate
that, or would you intend to try and mitigate that
+nd my second #uestion is about the member of the 0"ecutive &oard who will eventually take
up a position as the 1ice,2hair of the $upervisory &oard. You stressed in the past the need to
have separation here, so I would be interested if you could e"plain what role that board
member will play in 3overning 2ouncil debates on monetary policy. *ill that person e"ercise
a vote or abstain from activity on the monetary side
Draghi+ I will answer the second question first. I will quote from the 7tatute of the 87-+ and of
the 8-+. It states that Ieach mem,er of the )overning -ouncil shall have one voteJ, so this is
part and parcel of the >reaty and cannot ,e changed. Having said that, we will certainly ma"e
sure, and are actually already ma"ing sure, that there are enough degrees of separation so as to
a,solutely esta,lish that the two decision sets are "ept separate. >hat is what we are doing,
separation within the >reaty.
%egarding the wea"ness in lending and whether the #K% may have increased this, one certainly
might have some short-term deleveraging ,y the ,an"ing system in order to ,e prepared for the
#K%. However, one has to counter,alance this with two other considerations. 9ne is the long-
term greater health of the ,an"ing system F when I say long-term, I am not tal"ing a,out years,
,ut a,out the end of this year, when the #K% will have ,een completed. >he ,an"s are actually
underta"ing corrective action even ,efore the #K% ta"es place, as you yourself suggested. 7o, ,y
the end of this year, we will certainly have a stronger and more transparent ,an"ing system.
$ar"ets will ,e a,le to ,etter understand what is on the ,an"s3 ,alance sheets. >hat is the second
pointE one has to ,alance the short-term implications with the fact that, as you can see, the capital
mar"ets have reopened for ,an"s. #nd here I would li"e to draw your attention to a very
interesting piece of data. !ou "now that after the Lehman crisis, the spread ,etween non-
financial corporate issuance and financial or ,an"ing issuance moved up su,stantially, and
stayed high for quite a long time. 9ur figures now show that this spread has disappearedL to me,
this is a very important signal of some improvement in financial mar"ets. I thin" it has fallen to
Mero, ,y and large.
=inally, let me ma"e a general consideration. I don3t thin" we want to repeat the mista"e made ,y
other countries in not repairing the ,an"ing system when it is time to do so. 2e have seen that an
unhealthy ,an"ing system slows down the transmission of monetary policy and hampers credit. I
am not saying we have a fragile ,an"ing system, ,ut it is very important to address this concern
and to avoid a credit crunch. >hat is why we want to do it. 7o, while it is true that there may ,e
short-term implications, you want to counter,alance them with all these considerations. In the
end, the scale is very much on the side of ta"ing action.
Question: (he fall in core inflation to a record low in December has prompted some calls
from some analysts for more action from the 02& straight away. *ere the views of analysts
shared by any members of the 3overning 2ouncil today in calling for more action
immediately +nd second, you mentioned in the answer to one of the #uestions that all
instruments allowed by the (reaty would be eligible if necessary. 2an you %ust confirm
whether that includes outright asset purchases or not
Draghi+ 9n the second question, as I said ,efore, I would not want to go into the specifics. I
want to ,e a,solutely clear though that we have a mandate to ensure price sta,ility in ,oth
directions. #nd the )overning -ouncil is ready to use all the instruments that are allowed ,y the
>reaty.
9n your first question, we were all aware that the decline in the inflation rate in :ecem,er /0.;
was, first of all, e5pected. It was caused ,y a technical ad*ustment affecting the seasonality of the
services inflation statistics in )ermany, which ,asically meant that the :ecem,er /0.; data
came out much lower than in ovem,er. =ortunately this was a one-off event.
Question: Mr Draghi, after three years of crisis, bond markets in 0urope seem now to be in
better shape, or at least to work more normally, especially in the south of the euro area. (here
is still a lot to do, but how do you see this evolution and what do you e"pect for the coming
months
Draghi+ 2ell, there are many reasons for this, some of which we are actually still e5ploring. +ut
there is no dou,t that conditions in the financial mar"ets have ,een gradually easing since July
/0./. >his is certainly due to the 8-+3s actions, ,ut equally important are the actions ,y
governments, ,oth in fiscal consolidation and in some countries F which are, ,y the way, the
ones that are now seeing the greatest ,enefits F in underta"ing the needed structural reforms. #nd
third, we have to loo" at what has happened since then to the general euro governance and the
progress that has ,een made on the ,an"ing union. I "now that many commentaries always loo"
at the glass as ,eing half-empty, ,ut this is not true. If you *ust have some historical perspective
and loo" how euro area governance was one-and-a-half to two years ago and you compare this
with what it is today, there has ,een an e5traordinary, very significant step forward. I thin" these
three factors e5plain some of the improvements, ,ut fran"ly there are also other factors that will
still have to ,e analysed.
Question: -resident Draghi, you said recently in an interview that we must take care not to get
stuck in a period of inflation below 45, thereby slipping into a danger 6one, and in the
introductory statement you noted that inflation will be staying around current levels for the
coming months. 7ow long can you be below 45 before you have to do something My second
#uestion is about money markets. You %ust talked about the ne"us between e"cess li#uidity and
money market rates and we are seeing that some money market rates are now at a higher level
than they were last summer when you said they were unwarranted. 2ould you maybe e"plain
a little bit what8s driving them at the moment
Draghi+ 9n the first point, as I said, inflationary pressures are going to remain su,dued for quite
some time. ow they are pro*ected to stay su,dued, ,elow the level of /6, for at least two years.
+ut we have to loo" at it from a medium-term perspective and, so far, this is quite in line with
our ,aseline scenario. 2e will act when we have reason to thin" that our medium-term
assessment for inflation is changing for the worse and, as I said ,efore, we stand ready to act and
we stand ready to use all the needed instruments that are allowed ,y the >reaty. 2e have our
mandate, we are acting within our mandate and we have to use the instruments that are allowed
,y the >reaty.
9n the second point, short-term money mar"et rates depend on a variety of factors. 9ur forward
guidance, strengthened ,y the decision that we too" in ovem,er, has produced, I would say,
quite a successful sta,ilisation of the interest rate curves in the short term. It certainly has
reduced uncertainty a,out interest rates F the volatility of interest rates F and also uncertainty
a,out monetary policy actions. 2e have clarified our reaction function, ,ut we have to "eep in
mind that there are all "inds of influences on these rates, some of which have to do with our own
euro area economy and some of which have to do with e5ternal factors. 9ur view is that after the
forward guidance that has ,een issued and strengthened ,y our ovem,er decision, the factors
that have to do with our own economies are now predominant. In other words, to some e5tent,
the euro area is fairly insulated from outside developments and I thin" that3s what we are seeing
now. #nd the overall situation is very different from what it was in July.
Question: My #uestion relates to the bond markets again. (his week we have seen the Irish
come back to the market and the success of the refunding e"ercise. $o, does that back up some
of the comments that we have heard from 2ommission politicians, who have said that we can
now declare victory on the euro area crisis !r, given some of the figures that we have
discussed, like the 495 unemployment rate for the euro area, the high levels of youth
unemployment, etc., is it premature for us to describe this crisis as being over, and can we
actually declare victory as some politicians have done, politicians who are obviously trying to
reach out to a broad platform Your views on this would be very welcome.
Draghi+ I would ,e very cautious a,out saying that, very cautious indeed. 4nemployment stands
at over ./6. >he only positive news is that this unaccepta,ly high unemployment rate is
sta,ilising. In other words, it is not continuing to go up each and every month. However, it still
stands at over ./6. >he recovery is there, ,ut it is wea", it is modest. #s I have said many times,
it is also fragile, meaning that there are several ris"s F from financial and economic ris"s,
through geopolitical ris"s, to political ris"s F that could easily undermine this recovery.
=ortunately, we can see that the recovery, which was initially ,ased e5clusively on e5port
growth, is now very gradually e5tending into domestic demand. +ut it is still premature to
declare victory. #s someone o,served earlier, that is why we are using an even firmer language
for our forward guidance. I thin" that if you loo" at the drivers of this recovery, on the one hand
we have e5port growth, and we thin" that glo,al demand may continue to ,e what it is and, if
anything, increase. 9n the other, we have domestic demand, where the following factors are
actually helping the recovery to spreadE >he first factor is certainly our very accommodative
monetary policy stance, which is finally finding its way through the economy. >he second effect,
which relates to what you said a,out the ,ond mar"ets, is confidenceE confidence is gradually
coming ,ac". >he third factor is that there is also somewhat less of a fiscal drag than there was
last year. =inally, the very low inflation rate is, in itself, supporting real disposa,le income. ow,
if you e5amine these four factors, you see how easy it is to turn some of them into their opposite,
certainly not the monetary policy stance, ,ecause it is a policy decision, ,ut confidence, for
e5ample. -onfidence has returned, ,ut si5 months ago we would not have said that. 8ven three
months ago, we would not have ,een that e5plicit. 7o, we want to see confidence for a relatively
long time ,efore we can say we can declare victory. I would say that things are slightly ,etterE
our ,aseline scenario is ,eing confirmed.
Question: :irst, would you say today that deflation risks are no higher than they were in
;ovember, when the 02& promptly decided to cut rates after the very low inflation rate of
!ctober $econd, the 02& issued a statement on $0-+ migration. *hen we read between the
lines, it seems that the 02& is kind of upset about the possibility of delaying the end of
migration. 2ould you maybe elaborate on this
Draghi+ 2ith regard to the first question, I have really "ind of answered that ,efore. >he data
that came out in :ecem,er /0.; were essentially the result of a technical issue, what some
people would call a quir", in the statistics on services inflation in )ermany.
#s for the second question, I am not sure what you mean ,y I,etween the linesJE I would say
that it is the -ommission3s initiative and thus the -ommission3s view.
Question: :irst, a short #uestion, is there any news regarding the protocols of the 3overning
2ouncil meetings +nd a second #uestion, to come back to the $0-+ migration issue. 2ould
you elaborate a little more on why the 0urosystem seems obviously to be sceptical about
postponing the deadline for the migration Is it %ust not necessary from your point of view or
is it sort of problematic or even dangerous -erhaps you can say a little more about that.
Draghi+ 9n the second question, what we were o,serving recently is that finally migration was
pic"ing up and I can give you some figures. =irst of all, there have ,een significant efforts ,y the
ma*ority of the sta"eholders in the euro area. =or e5ample, the ovem,er migration figures show
a significant increase in 78P# direct de,its, to /C6 of total transactions, more than dou,le the
9cto,er figures, when they had increased ,y ...<6, and almost four times the 7eptem,er
figures, when it was only D6. 7o, ,ased on the feed,ac" we get from the industry and from the
mar"ets, we do e5pect this growth rate to continue as we spea". #s for credit transfers, C16 of
transactions in ovem,er were already 78P#-compliant. #nd they were up from C06 in
9cto,er. >hat is why, in a sense, we want to see this migration completed, we thin" it is of
,enefit for the consumers, first and foremost, and in a sense indirectly also for the ,an"s.
#s for the minutes, we still are reflecting on it. >he 85ecutive +oard will present soon a first
proposal. I "ind of used the wrong word, not IminutesJ, I3d say IaccountsJL you said
IprotocolsJ. 2e will discuss it. +ut as I have said many times, in a sense it is not an easy issue. It
is complicated ,y the fact that the 8-+ wants to ,e F we thin" we are transparent already F even
more transparent, giving some richer information a,out our deli,erations, a,out our discussions.
#t the same time, we have to "eep in mind that we are not a one-country environment and this
implies that we have to ,e the *ealous guardians of the independence of our )overning -ouncil
mem,ers.
Question: <ack 'ew, the =$ (reasury $ecretary, was %ust in -aris, &erlin and 'isbon this
week. I attended his press conference in -aris and he said that the =nited $tates was looking
for a growth agenda that has to be rooted in investment and demand, and it was clear that
some countries have more capacity to stimulate growth and demand than others do. I have a
suspicion he was talking about 3ermany. Is that view shared by the 02&, that there are
countries here maybe with current account surpluses that need to step up and stimulate
demand
Draghi+ Let me ma"e *ust two points on this. In a speech I gave in +erlin a,out a month ago, I
quoted President #,raham Lincoln. He famously saidE I!ou cannot ma"e the wea" stronger ,y
ma"ing the strong wea"erJ. !ou want to promote growth, ,ut you are not doing it ,y wea"ening
the country that is ,est performing in the euro area. #ll the euro area mem,ers ,enefit from this
performance. If there are, as there are, structural investments, infrastructure investments to ,e
done, they ought to ,e carried out. %egardless, in a sense, of what is the consequence, they ought
to ,e carried out. 7o, the policy advice is reallyE continue your successful performance and ta"e
care of the wea"nesses in investments where needed. I never understood very well the idea that
,y ma"ing )ermany wea"er you would ,enefit other countries in the euro Mone or ,y
undermining the fundamentals upon which this strength is ,ased one would ma"e the other
countries stronger.
Question: Mr -resident, you have given us an account of the effectivity of the measures being
taken within this crisis. 2ould you please also give us an outlook and your account of where
you see the main risks in the forthcoming months that could undermine this effectivity +nd
secondly, %ust to clarify: in the last months, you have always told us that the 02& 3overning
2ouncil currently sees no deflationary pressures. ;ow we see a rather negative outlook for the
coming months. Is this still the stance the 02& 3overning 2ouncil has
Draghi+ >here are, as I said in the introductory statement and as unfortunately I have ,een
saying now for months, downside ris"s to the economic recovery, and the downside ris"s stem
from all the uncertainties F financial and political uncertainties, commodity prices F all the
uncertainties that could undermine the main factors driving the recoveryE loss of confidence,
even political crisis. 7o, these could all, in a sense, undermine the success of this very modest
recovery. 9n the inflation side, as you say, this is our ,aseline scenarioL we do not see deflation
right now, ,ut, if we were to have low inflation for a very protracted period of time, it is quite
clear that we should ,e e5tremely aware of the potential downside ris"s. %ight now we see
limited upside ris"s and limited downside ris"s for the inflation path. #nd let me also add that
when we define deflation as a ,road-,ased, self-fulfilling, self-feeding fall in prices, we do not
see that in the euro area. 8ven when we loo" at individual countries we may actually see
negative inflation rates in one or two countries, ,ut then we should also as" how much of this is
due to the necessary re,alancing of an economy that had lost competitiveness and had gone into
a financial and ,udgetary crisisH #nd how much of it is due to actual true deflationH 7o, ,y and
large, we do not see deflation in the Japanese sense of the .@@0s.
+ut we as"ed ourselves F and perhaps I have e5plained this on another occasion F are we close to
the Japanese scenarioH #nd the answer we gave ourselves is no, we are not. =or a variety of
reasons. >he first one of which is the most important, i.e. that the 8-+ has ta"en decisive action
at a very early stage of this crisis. >he second is that the condition of the ,alance sheets of the
,an"ing sector and the corporate sector is not as ,ad as it was in the .@@0s there. >he third
reason is that we are now proceeding fast with the asset quality review A#K%B, which will lead to
the repair of our ,an"ing system. #nd the final reason is that if we loo" ,ac" at how long-term
inflation e5pectations were actually ,ehaving in Japan at that time, we would find out that they
were actually not firmly anchored. >hat is why it is so important that our inflation e5pectations
remain firmly anchored, ,ecause they tell people that in a certain amount of time, over the
medium term, inflation will go ,ac" to our o,*ective, namely close to ,ut ,elow /6.
Question: I am wondering: can the 02& ever run out of money
Draghi+ >echnically, no. 2e cannot run out of money. 2e have ample resources for coping with
all our emergencies. 7o, I thin" this is the only answer I can give you.
Question: My first #uestion is on inflation. You said that the small decrease in December 9>4?
was broadly as e"pected and that you e"pect annual inflation rates to remain at around
current levels. Does this also mean that you would not be surprised if annual inflation rates
fell a little bit further in the coming months as some economists e"pect, or would you e"pect
them to go up at least a little bit $o, if annual inflation rates decrease further, does this mean
that it would change your medium,term inflation pro%ections $econdly, on your relationship
with the 3ermans and the 3erman public or the 02& and the 3ermans, you said in an
interview that there was a perverse angst in 3ermany that things were turning bad. Do you
really think that this was helpful for increasing the understanding and support in 3ermany
for the 02&8s policy
Draghi+ In answer to the first question, we have a ,aseline scenario, which was presented in the
most recent macroeconomic pro*ections ,y 8-+ staff and includes the inflation figures for the
ne5t two years. 2e don3t e5pect anything other than our ,aseline scenario. 9therwise, you
wouldn3t call it a ,aseline scenario. 9n the other point, let me say a couple of things. =irst of all,
if I can find the actual definition of perverse in 8nglish, I would ,e very glad. >here is a
difference ,etween perverse and perverted, and I thin" there was a misunderstanding there. $y
second point is that there were two issues in this interview. Let me quoteE I#re you saying that
the euro crisis is overHJ >hat was the question. >he answer wasE Io, ,ut the fears felt ,y some
sectors of the pu,lic in )ermany have not ,een confirmed. 2hat haven3t we ,een accused ofH
2hen we offered 8uropean ,an"s additional liquidity two years ago, it was said there would ,e a
high rate of inflation. othing has happened. 2hen I made my comment in London, there was
tal" of a violation of the central ,an"3s mandate. +ut we had made clear from the ,eginning that
we are moving within our mandate. 8ach time it was said, for goodness3 sa"e, this Italian is
ruining )ermany. >here was this perverse angst Anot perverted angstB that things were turning
,ad, ,ut the opposite has happenedE inflation is low and uncertainty reducedJ. >hat is what I said.
7o, the angst referred to inflation angst. It3s also ,een commented that there is another angst
which is actually very serious and very real. 2e should all ,e concerned, not only in the euro
area, ,ut in most developed countries, that there is the angst of people who are preparing for their
old age. >he angst of people whose pension plans are ,eing reduced in capital value ,y the very
low level of interest rates. >hat3s a different thing and a serious pro,lem, which the low inflation
and low interest rates carry with them. 7o we are also thin"ing a,out this and are very aware of
this pro,lem. It3s a very reasona,le angst and we are confident that, as the recovery ta"es place
and gets firmer and firmer, we will see ,etter rates of return on the investments of the pension
plans and the insurance plans. #nd I would also comment that these rates of return have little to
do with our short-term rates. 7o, even though the 8-+ is depicted as the institution that is
actually "eeping rates low, we are not tal"ing a,out the same rates. >he rates of the pension plans
are long-term rates. 2e are tal"ing a,out short-term rates in our policy, so the two things are
different. ow, the definition of perverse is Ipersistent in errorL different from what is
reasona,leJ. 9f course, that3s one of many definitions, ,ut it3s the one I was referring to.
Question: +llow me to come back to the topic of $0-+ migration. You8ve given us some
average figures for the euro area on the percentage of transfers that are made in accordance
with the $0-+ standards now or were made in !ctober@;ovember, but there are differences
between countries. 7ow do you e"plain the fact that some countries are lagging behind so
much, especially 3ermany *hy is it that 3ermany in particular is coming so late to $0-+
migration
Draghi+ I don3t really want to comment on specific countries, ,ut I can give you the names of
the leaders. >hey are =inland, Lu5em,ourg, 7lovenia and 7lova"ia, with migration rates close to
.006 for credit transfers. =inland and 7lovenia are also close to .006 for direct de,its. 7o, if we
focus on growth rates, the migration is actually gaining momentum everywhere, even in
)ermany. In a sense, it3s quite understanda,le that the larger and more comple5 ,an"ing systems
ta"e longer to achieve what is an amaMing migration to a single 8uropean system. -ertainly, what
I can see now is a general significant effort ,y all the sta"eholders in the euro area, i.e. ,an"s,
corporates and so on. #nd, as I have said, larger and more comple5 systems will naturally ta"e
longer.
Question: I8d like to ask you for a few more details about the asset #uality review. I8d like to
know if there is consensus on the treatment of government bonds, %ust if you can give us a few
more details on this. My understanding is that they would be considered as having no risk in
the asset #uality review A if you could be %ust a little more specific on this. +nd another
#uestion regards whether you have reached agreement on any date A a future date A for the
publication of the details of the re#uirements for banks in view of the asset #uality review.
Draghi+ 9n the second point, we will come out with a second ,atch of information at the end of
this month, in which we3ll say more a,out the asset quality review, we3ll say more a,out the
stress tests. 7o that is the deadline that we3ve given ourselves.
9n the first point, I3m afraid there is a certain amount of confusion. )overnment ,onds are going
to ,e treated in the review e5actly li"e the +asel -ommittee is saying. 7o, government ,onds are,
in the +asel -ommittee regulation framewor"
N.O
, ris"-free, and that is one thing. ow, li"e all
assets of the ,an"s, they will ,e su,*ect to stress tests. +ut they are ris"-free. # different issue is
what happens to the ,an"ing regulation, how the future ,an"ing regulation will treat government
,onds. #nd that3s an entirely different issue which we don3t deal with here, ,ut the natural place
to discuss these issues is the +asel -ommittee F any change to the treatment of government
,onds will have to ,e agreed at a glo,al level.
Question: I8 m sorry if I missed your comments on this. *ere there any board members who
were in favour of a rate cut at this meeting or was the decision to hold the rate unanimous
Draghi+ #s I said ,efore, we had an e5tensive discussion on the state of the economy. 2e as"ed
ourselves questions more a,out what sort of ris" could undermine our ,aseline scenario. -ould
this modest recovery wea"en all of a suddenH 2hat would cause our medium-term assessment
for inflation to worsenH #nd when I say IworsenJ at this point in time, I mean to go down. #re
the ris"s for inflation ,igger in one direction or anotherH I said they3re limited on ,oth sides and
in the introductory statement I said they3re ,roadly ,alanced. #nd then we as"ed ourselvesE what
is an unwanted tightening on the short money mar"ets, which could then translate itself into a
threat to the recoveryH >hese sorts of questions were discussed, and then of course we discussed
all the instruments that would ,e used if such scenarios were to materialise.