Actual Government leaders of United Kingdom (with him wife) and Germany (with her husband) near Berlin
Actual and subservient Portuguese Government leader with Chanceler of Germany (Lisbon, South west)
The new Government leader of Italy with the Chanceler of Germany in a press conference (Berlin1-5-2013):
_ «The message which has arrived from the Italian electorate should not
be underestimated»
_ «budget
consolidation and growth need not be contradictory. The goal is not deficit or growth numbers but getting people back to work»
_ We have done and will continue to do everything needed to keep our
finances in order but we believe Europe must pursue policies for growth (...)
Actually Germany rules Europe by a strong euro but without cultural capacity for that from it actual leaders. The management of financial and economic crisis is a disaster for Europe, with salience of Latin and Greek Europe (South). The obsession with inflaction risks limit Germany and Europe.
The rise and fall of III Reich, the rise and fall of USSR was a disaster for Europe and the World. Tiranny, Ignorance and Fanaticism has the same monstrous level in a desctrutive will of power. The ideology, the mix between force and consensus (Gramsci) that create power in German Society and Russian Society has the same dialectiv vectors: authocracy, State, nomenclature, scapegoating crush Persons after manipulate them. All for State nothing for Person.
As we said in our message "Russia", Weimar Republic - III Reich and USSR create and share an horrible desctrutive dialectic with a sad resultant for Europe: East versus West, Tiranny versus Democracy defended by United Kingdom and United States of America!
When USSR fell East rise to Liberty and joined West, Sunrise joined Sunset ...
Germany turned again united in it great diversity like in XIX century. After East Germany was integrated and Berlin has been capital again, all sacrificies of German Persons, implicated by her leaders of III Reich that destroied millions of German and not German lives, have a good resultant: Germany is strong by it capacity to produce equipments, developed by the war, supported by USSR that open it territory to German could create another very large war, supported in a metalic and chemical industry, based in petroleum as energy.
For develope it industry Germany has the great support of European Union and it big markets, with countries of European South like Italy, Spain, Portugal, Greece, Romania, ... that need it equipments, but not so much like so much automobiles and submarines. A lot of capital submersed South, all was easy, all was empolated with local leaders, oligarchies, oligopolies and all kind of powers creating games of negative sum for South of Europe, to much dependent of food, energy and equpments and prejudiced for a to much strong money in a strong process of liberalization that support the rise of China as a big factory of world without respect for Persons and Environment .
The success for Germany was an insucess to «South» in a game with negative sum for Europe! Responsabilities? From all! But as President of European Commission partially confess about Portugal, the major responsability come from very bad politics and policies that implicated bad destruction or not construction of economic activities that create Value for world. In Portugal the dialectic between Monarchy, I Republic, Salazar+Estado Novo and III Republic was a disater for the country that implicated a very dependent economy where employees could work 24 hours over 24 hours and couldn´t add a great Value with the kind of activities that leadership created (industry for example was blocked by Salazar), with Production (some based in external investment) and Consumption generating a lot of imports.
«(...) governos, parlamento, opinião pública e comunicação social têm uma impressão errada sobre a realidade dos países do Sul (...) forma como os países do Norte tratam os do Sul, nomeadamente Portugal (...) inaceitável»
«Portugal, certamente, cometeu erros como todos os outros os países mas não é culpado da crise atual»
Jean-Claude Juncker (4-5-2013)
European Central Bank cut it benchmark interest rate from 0,75% (2012 July) to 0,5% (20130502), finnaly!
- Before, from Germany:
«The ECB is obviously in a difficult position. For Germany, it would actually have to raise rates slightly at the moment, but for other countries it would have to do even more for more liquidity to be made available and especially for liquidity to reach corporate financing.» Angela Merkel Canceller of Germany (26-4-2013)
«Savers must be able to be confident that this period of low interest rates will be ended as soon as possible». [The ECB’s low-interest policy amounts to an “expropriation” of savers’ assets.]» Georg Fahrenschon, president of German Savings Banks Association (26-4-2013)
«Mr. Bernanke too can only buy time, he can’t solve the
problems in substance of the economy, (...) is aware that they need a credible
medium-term strategy. (...) Emerging economies’ concerns about an excessive flood of
liquidity is impossible to ignore (...) That’s something that has to be taken seriously in
industrialized countries and it makes no sense to just demand
that no capital controls be imposed.
[ECB should] «drain liquidity» [from the system.]
«There is a lot of money in the banks and at the European Central Bank but not enough investment. That is where we want to take measures.» Wolfgang Schäuble, German Minister of Finance (19-04-2013 and 29-04-2013)
«Delaying fiscal
consolidation is no free lunch. It means higher debt levels. And this has real costs in
the euro area, where public debts are already very high (...) Monetary policy is not an all-purpose weapon
for any kind of economic illness (...) Due
to impaired monetary policy transmission, the pass-through of rate cuts
to the periphery would be limited, and this is where they are most
needed (...).»
Jörg Asmussen, German executive board member of the ECB (25-04-2013)
«"...) will refrain from competitive devaluation (...) will not target our exchange rates for competitive purposes."» Jens Weidmann, Bundesbank President salience to G-20 communique (19-04-2013)
- After Mario Draghi said in 2-5-2013 (https://www.ecb.int/press/pressconf/2013/html/is130502.en.html):
«(...) based on our regular economic and monetary analyses, we decided to lower the
interest rate on the main refinancing operations of the
Eurosystem by 25 basis points to 0.50% and the rate on the marginal
lending facility by 50 basis points to 1.00%. The rate on the deposit
facility will remain unchanged at 0.00%. These decisions are consistent
with low underlying price pressure over the medium term. Inflation
expectations for the euro area continue to be firmly anchored in line
with our aim of maintaining inflation rates below, but close to, 2% over
the medium term. In keeping with this picture, monetary and loan
dynamics remain subdued. At the same time, weak economic sentiment has
extended into spring of this year. The cut in interest rates should
contribute to support prospects for a recovery later in the year.
Against this overall background, our monetary policy stance will remain
accommodative for as long as needed. In the period ahead, we will
monitor very closely all incoming information on economic and monetary
developments and assess any impact on the outlook for price stability.
Second, we are closely monitoring money market conditions and their
potential impact on our monetary policy stance and its transmission to
the economy. In this context, we decided today to continue conducting
the main refinancing operations (MROs) as fixed rate tender procedures
with full allotment for as long as necessary, and at least until the end
of the 6th maintenance period of 2014 on 8 July 2014. This procedure
will also remain in use for the Eurosystem’s special-term refinancing
operations with a maturity of one maintenance period, which will
continue to be conducted for as long as needed, and at least until the
end of the second quarter of 2014. The fixed rate in these special-term
refinancing operations will be the same as the MRO rate prevailing at
the time. Furthermore, we decided to conduct the three-month longer-term
refinancing operations (LTROs) to be allotted until the end of the
second quarter of 2014 as fixed rate tender procedures with full
allotment. The rates in these three-month operations will be fixed at
the average rate of the MROs over the life of the respective LTRO.
Third, the Governing Council decided to start consultations with
other European institutions on initiatives to promote a functioning
market for asset-backed securities collateralised by loans to
non-financial corporations.
In the meantime, it is essential for governments to intensify the
implementation of structural reforms at national level, building on
progress made in fiscal consolidation and proceeding with bank
recapitalisation where needed. Furthermore, they should maintain the
momentum towards a genuine Economic and Monetary Union, including the
swift implementation of the banking union.
Let me now explain our assessment in greater detail, starting with the
economic analysis. Real GDP contracted by 0.6% in the
fourth quarter of 2012, following a decline of 0.1% in the third
quarter. Output has thus declined for five consecutive quarters.
Overall, labour market conditions remain weak. Recent developments in
short-term indicators, notably survey data, indicate that weak economic
sentiment has extended into spring of this year. Looking ahead, euro
area export growth should benefit from a recovery in global demand and
our monetary policy stance should contribute to support domestic demand.
Furthermore, the improvements in financial markets seen since last
summer should work their way through to the real economy. At the same
time, necessary balance sheet adjustments in the public and private
sectors will continue to weigh on economic activity. Overall, euro area
economic activity should stabilise and recover gradually in the second
half of the year.
The risks surrounding the economic outlook for the euro area continue
to be on the downside. They include the possibility of even weaker than
expected domestic and global demand and slow or insufficient
implementation of structural reforms in the euro area. These factors
have the potential to dampen confidence and thereby delay the recovery.
According to Eurostat’s flash estimate, euro area annual HICP
inflation was 1.2% in April 2013, down from 1.7% in March. This decline
in the annual inflation rate reflects a significant fall in energy
prices, but is also due to a sizeable transitory effect coming from the
annual rate of change in services prices on account of the timing of
Easter. Inflation rates could remain subject to some volatility
throughout the year. Looking further ahead, underlying price trends
should persist and, over the medium term, inflation expectations remain
firmly anchored in line with price stability.
Taking into account today’s decisions, risks to the outlook for price
developments are broadly balanced over the medium term, with upside
risks relating to stronger than expected increases in administered
prices and indirect taxes, as well as higher commodity prices, and
downside risks stemming from weaker economic activity.
Turning to the
monetary analysis, recent data confirm that the
underlying pace of monetary expansion continues to be subdued. Annual
growth in broad money moderated in March, standing at 2.6%, after 3.1%
in February. The annual growth rate of the narrow monetary aggregate,
M1, increased slightly further to 7.1% in March, reflecting the
continued preference for the most liquid instruments in M3. Deposits
with the domestic money-holding sector continued to grow further in most
stressed countries in March.
The annual growth rates of loans (adjusted for loan sales and
securitisation) to non-financial corporations and households have now
remained broadly unchanged since the turn of the year, standing in March
at -1.3% and 0.4% respectively. To a large extent, weak loan dynamics
reflect the current stage of the business cycle, heightened credit risk
and the ongoing adjustment of financial and non-financial sector balance
sheets. The recent Bank Lending Survey (BLS) confirmed weak demand for
loans in the euro area. While some signs of stabilisation are emerging,
the Survey on the access to finance of small and medium-sized
enterprises (SMEs) in the euro area indicates continued tight credit
conditions, particularly for SMEs in several euro area countries.
Moreover, the available information indicates high risk perception on
the part of banks.
In order to ensure adequate transmission of monetary policy to the
financing conditions in euro area countries, it is essential that the
fragmentation of euro area credit markets continues to decline further
and that the resilience of banks is strengthened where needed. Progress
has been made since last summer in improving the funding situation of
banks, in strengthening the domestic deposit base in stressed countries
and in reducing reliance on the Eurosystem as reflected in repayments of
the three-year LTROs. Further decisive steps for establishing a banking
union will help to accomplish this objective. In particular, the
Governing Council emphasises that the future Single Supervisory
Mechanism and a Single Resolution Mechanism are crucial elements for
moving towards re-integrating the banking system and therefore require
swift implementation.
To sum up, taking into account today’s decisions, 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.
With regard to
fiscal policies, the spring 2013 deficit and debt data
notifications by euro area countries indicate that the average
government deficit declined from 4.2% of GDP in 2011 to 3.7% in 2012.
Over the same period, the average government debt rose from 87.3% to
90.6% of GDP. In order to bring debt ratios back on a downward path,
euro area countries should not unravel their efforts to reduce
government budget deficits and continue, where needed, to take
legislative action or otherwise promptly implement
structural reforms, in such a way as to mutually
reinforce fiscal sustainability and economic growth potential. Such
structural reforms should target improvements in competitiveness and
adjustment capacities, as well as aim to increase sustainable growth and
employment.
We are now at your disposal for questions.
* * *
Question: You have cut the key interest rate to 0.5%. Can you come
up with some quantitative estimates for implications in the euro zone?
Can you envisage a lower interest rate than 0.5%?
Draghi: The Governing Council has taken this decision
consistent with the low price pressure over the medium term. As I said
in the introductory statement, HICP inflation has gone down
considerably. Even if you look at HICP inflation without food and energy
prices, it has still gone down, but less markedly. Inflation
expectations are well anchored in the medium term. As I have said,
monetary and credit development have been subdued. Weakness in the
fourth quarter of 2012 extended into the first part of this year. So,
all in all, the Governing Council decided to go for a cut of 25 basis
points, accompanied, however, and I would ask you not to underestimate
the importance of the other measure, by maintaining the fixed rate full
allotment policy until at least mid next year. The combination of the
two measures is especially important and we can discuss this in the
upcoming questions. At the same time, and this answers the last part of
your question, we will certainly look at all the incoming data and
carefully monitor developments. As I said last time, we stand ready to
act if needed.
Question: What could be the effects of the interest rate cuts? Is there no risk of inflation, as you have said before?
Draghi: We act consistently with our analysis of price
developments and in line with our objective of maintaining price
stability in the medium term. The weak developments in the real economy,
and on the monetary and credit side, warranted action by the ECB, so we
decided to cut rates by 25 basis points and, (...) to
maintain the fixed rate full allotment policy at least until July of
next year. The combination of the two measures is important by itself.
It ensures the smooth transmission of our monetary policy to money
markets. The fixed rate full allotment policy will represent liquidity
insurance for the banking system. So, frankly, fears over a lack of
funding cannot be used as an excuse for not lending. At the same time,
we believe that restricting the interest rate corridor will also dampen
the volatility of the EONIA rate. In other words, this is a measure that
benefits all kinds of banks: those that borrow at the EONIA,
middle‑tier banks that do not have access to money markets but borrow at
the MRO rate, and banks that are under ELA (Emergency Liquidity
Assistance) and face restrictions regarding their collateral. So, this
measure is addressed to all the different types of bank. We believe that
this measure is going to be fully effective for at least two reasons.
One is that (...) we have seen signs that fragmentation is receding (...) the weakness in economic activity and the revised price
stability projections for the medium term are also now affecting not
only non-core economies, where one might have had doubts about the
monetary policy transmission mechanisms, but also core economies, where
these issues never existed. So this measure is addressed to a broad set
of banks, and we believe it is going to be more effective today than it
would have been a few months ago.
Question: Would you say today’s rate cut is too little too late?
Unemployment is at a record high, there has been a sudden fall in
inflation this month, and with everything you have just said, it sounded
a bit like you are implying that you see that as a one-month blip in
the data on inflation, even though you are expecting some volatility
over the year. Could you say a bit more on that?
Second, are you the last austerity hardliners left standing? You had
an interesting part at the end of the introductory statement about
government debt levels and budget deficits, and obviously, this has been
a subject of discussion over the last few weeks – the austerity versus
growth debate. Do you feel like you are the only ones left arguing that
we need to keep up the fiscal consolidation efforts?
(...)
Draghi: (...)
(...) ECB’s monetary policy has been
extraordinarily accommodative throughout the crisis (...) financing conditions have changed: since 26 July 2012 stock
markets have gone up in Germany, France, Italy and Spain (...) there has been a gradual
return of confidence (...) given the
seriousness and the gravity of the previous situation (...) ten-year sovereign bond yields went down in the stressed countries by
more than 200-300 basis points, and even in France, by 53 basis points (...) for banks that finance themselves in the interbank market, the
EONIA is around 6 -7 basis points, i.e. almost zero. (...) this standard
monetary policy measure will be more effective now than it would have
been a few months ago.
With regard to the austerity versus growth debate, I think it is an
interesting one, but I would like to make a few points. The crisis has
had two stages. First, there was the realisation after the financial
crisis that the levels of bank capital ratios and government debt ratios
were not sustainable. This belatedly, led governments to start a fiscal
consolidation.
Second, there was the expectation, that self-fulfilling expectations
of a disruptive scenario, or what we call tail risks, would gain
momentum. For this reason we launched the OMT. We are therefore left
with the memory of the previous situation, to which I am sure no
government wishes to return. So, what is the message that the ECB has
been conveying for some time now?
First, don’t unravel the progress you have already made. And there
is no doubt that significant progress has been made in terms of fiscal
consolidation throughout the entire euro area. (...)
Second, fiscal consolidation is (...) contractionary in the short and medium term.
Therefore, you may want to take action to mitigate the contractionary
effects of this. But, how do you do that? Well, there are three ways.
First,
fiscal consolidation should be based on reductions in current
expenditure rather than increases in taxes. Unfortunately, many of the
fiscal consolidation measures were implemented in an emergency
situation, with
most governments choosing the simplest route, which was
to raise taxes. And here we are talking about raising taxes in an area
of the world where taxes are already very high, so it is no wonder that
this had a
contractionary effect. However, now that there is more time,
there could be a shift towards reducing current government expenditure
and lowering taxes. [INCREDIBLE HIPOCRISY! IN EXAMPLES LIKE PORTUGAL UNDER FINANCIAL ASSISTANCE EUROPEAN AUTHORITIES CAN´T DID NOTHING? REDUCE HOLIDAYS IS VERY GOOD FOR THE MANIPULATION OF THE INCREDIBLE PIIGS FALSIFICATION, BUT DON´T DID NOTHING FOR SOLVE PROBLEMS AND YOU INFLUENCED THAT, YOU HAS POWER TO THAT: INCOMPETENTS, YOU PERMIT THAT BRUTAL ERROR AND INJUSTICE FOR FAMILIES AND COMPANIES!!!]
Third, a key issue of fiscal consolidation is credibility, and the
credibility of a multi-year fiscal consolidation plan is ensured by a
detailed medium-term fiscal consolidation framework. There are countries
not only in the euro area, but also in the European Union, which
actually have a very credible fiscal consolidation framework, and for
this they have been rewarded with much lower interest rates on their
sovereign bonds.
Fourth, progress needs to be made with structural reforms. Many of
the problems that we see today in terms of competitiveness, the labour
market and taxes have nothing to do with monetary policy. They cannot be
fixed by monetary policy. They can only be fixed by changing what is
wrong in these three areas. [WAS MUCH MORE BETTER THAT YOUR «STRUCTURAL REFORMS» BEGUN BY STATES AND BANKS NOT BY DEVALUATE EMPLOYEES!]
(...) A key step (...) is the “swift implementation” of a banking union through the
establishment of the Single Supervisory Mechanism.
Question: Was the decision to cut interest rates unanimous?
Draghi: (...) There was a very strong prevailing consensus towards
an interest rate cut, and within that, there was a prevailing consensus
for a cut of only 25 basis points.
Question: (...) I wanted to ask you on the consultations you are starting on
creating a market for asset-backed securities. What exactly do you have
in mind, and are you potentially solving one problem by creating an
entirely new problem, given that asset-backed securities were the root,
at least in the United States, of the financial crisis of 2008 and 2009?
So, are you potentially creating a headache down the road?
Draghi: (...) On the deposit facility rate, we said it in the past: we are
technically ready. There are several unintended consequences that may
stem from this measure. We will address and cope with these consequences
if we decide to act. We will look at this with an open mind and we
stand ready to act if needed.
On the other part, it is actually broader than a standard measure
category and it relates to funding measures, broadly defined. One is
collateral, and the second set has to do with purchases of assets. Now,
you have got to be careful here, because let me say once again what the
ECB cannot do. The ECB certainly cannot supplement governments for their
lack of structural reforms. Secondly, the ECB cannot clean banks’
balance sheets. And third, the ECB is not in the business of monetary
financing, i.e. buying government bonds. When you consider all this, you
look at what assets could be purchased and then you look at what sort
of financial infrastructure the Europeans have. And it is different from
the United States. In the United States 80% of credit intermediation
goes via the capital markets. Capital markets rate and price assets in a
right or wrong way, but it’s fairly transparent. In the European
situation it is the other way round. 80% of financial intermediation
goes through the banking system. So, you are left with buying what? SME
loans, residential mortgages and mortgages to non-residents and a few
other types of loans. Now, this makes the problem much more complicated,
if one decides to take this way and really all the options are still
very open here. By the way, let me say that our thinking is very much in
a preliminary stage, given the complexity of the issue, so we have not
reached any conclusion either way. But if you go this way, you want to
find a way of packaging these loans in a way that they can be priced.
And that is where the reference to other institutions more suited for
this job of packaging and guaranteeing the loans comes in: the reference
to the European Investment Bank and the reference to the European
Commission itself.
Regarding the ABS, you are absolutely right, ABS have a very bad
name, but one should say that there were very different kinds of ABSs.
One was the so-called plain vanilla ABS box. You open the box, and you
know exactly what is inside. So, if you for example put some mortgages
there, it would be like a covered bond. A different thing was the
squared ABS, etc., that are infamously known to have been one of the
causes of disruption in the financial markets over the last few years.
But we are far from reaching any conclusion. We are looking at all
possible options, we are aware of the importance of this and we are also
aware of what we can do and what we cannot do.
Question: Mr Draghi, today you cut interest rates and the euro rose
at first. Now it just turned around after your comments about the
deposit rate. So, my question would be, is that a reason for concern and
do you thinks the deposit rate is more important than the benchmark
rate?
And my second question: Chancellor Angela Merkel recently said that
if you speak about Germany, you would have to raise interest rates.
What do you make out of these comments and is she correct?
Draghi: (...) we should never forget that our objective is to
maintain price stability in the medium term and not to be caught by the
market reactions. That is very important to remember. And in this case,
of course, besides price stability, we see the weak economy and the
weakness that continues to linger over the first part of this year.
On the second question, first of all, ECB independence is dear to
all, and especially, I would say, to German citizens. Second, I think
too much was made of that comment. The comment really if you take it
literally, meant to say, look, we have a different situation here in the
euro area. We have 17 countries and the business cycles of these 17
countries are not exactly the same; they are not synchronous and they
differ very much across the area. So, the monetary policy measures which
can benefit some countries may not benefit others. Given the weakness
that also extends to the core economies, we think it does benefit
everybody. But it was not a comment that was meant to infringe upon the
independence of the Governing Council, I am absolutely sure of that.
Question: You described how the OMT programme has brought calm to
the financial system during the last six or seven months and we have
seen the rates of sovereign bonds come down significantly. But we have
not seen the rates for small and medium-sized companies come down. Could
you explain why that has not happened and what this means for OMTs as
an instrument for addressing the fragmentation problem?
My second question is about the programme for asset-backed
securities (ABSs) you mentioned. Did I understand correctly that the ECB
is thinking about buying ABSs or is it all about collateral and
lending?
Draghi: On the second question, no, I don’t think you
understood correctly. We have a task force with the EIB and we view this
institution as the best suited to handle matters in this field. We do
not have a precise position on what we will do. Moreover, you have to
consider that the ABS market is dead and has been dead for a long time.
And this is the case for a variety of reasons. One is the regulatory
situation regarding ABSs. Another is that very low interest rates do not
make ABSs a particularly convenient instrument for funding an
institution. So there are many obstacles to overcome before I will be
able to give you a precise description of what we have in mind. The OMT
programme removed the tail risk and has been a very powerful instrument
in this regard, but we should not forget that the funding crisis that
the banks experienced dating back to mid-2011 caused a
credit
contraction, of which we are victims even today. It has been a gradual,
slow and long process of credit contractions. The two longer-term
refinancing operations avoided a worsening, or even a collapse I think,
of the situation and then the OMT programme removed the tail risk for
the euro area. But then you have to gradually unravel the fragmentation
that have taken place before the OMT programme and in the end - as I
said - started really by September 2011.
However, to say that everything is bad would not be correct. Let me
give you a few facts on how we view the current state of fragmentation.
As I said at another time, you have two sides to fragmentation. You have
the funding side and the lending side. Now, we definitely see progress
on the funding side. And this progress is documented by the fact that
domestic deposits continue to increase in all the banks of all the
stressed countries, or almost all I think. The second thing to consider
is the dispersion in the growth rates of deposits. If you look at how
fast these deposits are growing and at the dispersion of these growth
rates across countries, you will see that this continues to go down
month after month. It is now at its lowest level since May 2010 and this
is quite important. Third, capital inflows are continuing, which is
also the other side of the coin of why the path of the euro continues to
be strong, in spite of the weakness of the economy and in spite of the
low prices – this is really the other side or in other words a return of
confidence. Fourth, the claims on the Eurosystem by the banks continue
to go down and, since July 2012, they have gone down by €400 billion.
Incidentally, we have not seen any of the awful, terrible risks that
were predicted at the time. Finally, the TARGET2 balances (...) are also down, they have stabilised. So are we saying that
the fragmentation on the funding side is over and that everything is
normal? No! An interesting fact was pointed out to me this morning. A
bank issued a bond in Munich and in Milan, an uncollateralised senior
bond, so not a covered bond, and there was spread of roughly 150 or 200
basis points between the two. This is the same bank issuing in two
different sovereign jurisdictions.
On the lending side, progress is more muted, but here I would point
out something that could be a source of comfort. First of all, we are
observing a stabilisation in the dispersion of lending rates. This has
been increasing and increasing and now it seems to be stable, or at
least the values of the dispersion are no longer going up. The second
point is that the bank lending survey shows that there is a smaller
increase in tightening. In other words, banks in the stressed countries
continue to tighten, but at a slower pace. The third thing to consider
is the information provided by the survey of small and medium-sized
enterprises (SMEs), which is in a sense to me probably the most
important source of information. According to this information, where
you asked them “What is the share of rejections of loan applications?
This has gone down. Second, you asked them “What sort of financial
obstacles do you find in applying for a loan?” There are three points to
consider. First of all, as I mentioned, is the rejections. Second is
that SMEs may be given an amount which is lower than the amount they
asked for. Third, the banks may ask for an interest rate that is so
high, that the SME has to say “thanks, but no thanks”. We can see that
the survey responses relating to these so-called financial obstacles are
improving significantly in some of the stressed countries. And by the
way, in Germany, there has been an improvement across the board. For
instance, with regard to the availability of loans for the euro area,
there has been a significantly smaller deterioration, and the same is
happening at the country level for Spain and Italy, and obviously for
Germany and so on. Looking at these survey data, I would not conclude
that there is no more fragmentation, but we are observing improvements.
The problem, of course, is that – as I said at the beginning - this
credit contraction has been ongoing for a long time and has been
compounded by the short-term contractive effects of fiscal policies. So
unravelling this will not be achieved in a day.
Question: I would like to follow up on the question of growth versus
austerity because the debate is also quite vocal in Slovakia. You have
said that some of the austerity measures taken by Member States were
taken in an emergency situation and that they were not the best
measures. So, would you say that, possibly for the near future, a
compromise solution to prevent another similar emergency could be that
the countries which have already cut their deficits, at least to the 3%
of GDP euro area limit, could slow down consolidation so that they do
not have to cut their GDP deficit by 0.5% in the coming years, but maybe
by a lower amount, in order to support economic growth in these
countries? This is, for example, the political argument in Slovakia.
Draghi: First of all, the ECB does not have the final say on this. Let’s never forget this. I deliberately used the word “do not
unravel the progress that you have achieved” and, if your
country needs time, the trade-off for having more time should not be to
compromis
e on the ultimate objectives set by the European
Commission, but to have structural reforms in place, revisit the
composition of the fiscal adjustment and have a medium-term framework
which is strong and credible.
Question: Many members of the ECB have said that a rate cut will
have little effect in the current situation, with regard to the lack of
transmission of monetary policy. So why have you cut rates now? And have
you discussed in more detail the measures that would be needed in order
to re-establish the transmission of your monetary policy?
Draghi: As I said before, several encouraging signs
with respect to the declining fragmentation led us to this decision.
Let’s not forget the other fact that the weakness has now spread to
countries where the issue of transmission, or the lack of it, had never
existed. In other words, we know that standard monetary policy measures
are effective. I think these are the two predominant considerations.
Why is the demand for credit subdued? There are, as always, reasons
of supply and demand. In relation to demand, the economy is indeed weak,
and it is weak in its domestic components: consumption and, especially,
fixed investment. The bank lending survey and the survey of small and
medium-sized enterprises (SMEs) suggest that the dominant factor
explaining the low demand for credit is macroeconomic uncertainty, and
this goes together with risk aversion, which actually plays a role on
both sides, it affects both supply and demand. But, this is limited to
some countries. There is also the issue of deleveraging. The
deleveraging process is not something that only banks may have to do in
some countries, but it is also something that a bank’s clients may have
to do. Some corporations, SMEs and households have to deleverage. This
is not a euro area problem, but it is certainly a problem in some
stressed countries. This too explains low demand.
On the supply side, you have, predominantly, the issue of risk
aversion. As I have said, we look at all incoming data but, at this
point in time, we cannot say that funding worries are a dominant factor
in restricting credit supply. We do not see that. But we have to project
this for the coming months, and it is certainly true that we will have
another temporary surge in bank bond maturities within the next fifteen
months. However, it is predominantly risk aversion that makes supply
tight. It is the fact that, in some cases, many banks that did not have
any toxic assets and were not especially weak at the beginning of the
crisis have become weaker because of the rising share of non-performing
loans.
Recessions are, in a sense, like a spiral; fortunately, these are
not euro area problems, these are limited problems, but some of these
banks will have to strengthen their capital positions in order to get
back on dry land.
(...)
Question: I don’t know whether the Governing Council was aware of
it, but while it was meeting, the Pope was tweeting his unhappiness
about the unemployment situation and expressing some frustration that
people appear to be profiting at this time from rises in financial
markets, even as unemployment hits new record highs.
So, I have a two-pronged question: first, are you frustrated with
the perception that the ECB seems to be supporting financial markets,
but not doing much to help the real economy in the Eurozone?
And the second point to that would be: I sensed – when I heard you
talking at the beginning of this press conference – a little bit of
frustration about the way banks are not taking more risks onto their own
balance sheets. Is it not time that the ECB took that risk onto its own
balance sheet, and expanded its balance sheet, the rules
notwithstanding at this stage?
Draghi: We are - I would not use the word – well, ja I
would use the word “frustrated”, yes, certainly. We can see improvements
in the financial markets. We think financial markets are the only, and
the necessary, channel through which monetary policy is transmitted. We
don’t go around with helicopter money, throwing money around. In Europe,
you have to go through banks. You don’t have capital markets of the
kind you have in the United States, so that we have to proceed via the
banking system. That is why, in my press conferences, I try to give you a
very detailed reading of different indicators: because this shows how
closely we are trying to examine and analyse reality, to see whether the
impulses that we have been transmitting into the economy for a long
time now are being translated into better welfare, lower unemployment,
and better economic activity. So, no doubt about that.
On the second point of your question, on whether the ECB would take
risks onto its balance sheet, I have actually gone through that a moment
ago, and I think that I have shown you how far more difficult this
problem is in Europe than it is in the United States. And therefore, I
think that, in judging the central bank, one should be aware of what its
mandate is, of what it can do, of what the institutional set-up
surrounding the actions of the central bank is. And the institutional
set up is basically made up of two elements: First of all, there is the
governments’ action and, second, there is the financial structure in
which the central bank needs to act.
(...)»
