European Central Bank President Mario Draghi comments on monetary policy and the sovereign debt crisis.
He made the remarks at a press conference in Frankfurt today after the ECB kept interest rates unchanged at a record low of 1 percent.
“ Having a Plan B means you’re defeated already.”
“I’m quite confident that all pieces will fall into their proper places. I really want to see what comes out of the eurogroup tonight. It will be premature to say anything at this stage.”
“The EFSF is like governments. If you give money to governments, it’s monetary financing. If you make a loss on these sales, it’s monetary financing.”
“ The most important thing about Greece is the agreement that’s been reached.”
“We always focus ourselves on the need of financing things, but the most important thing is the reforms the countries make.”
The ECB is “not a negotiating party” in Greek debt-swap talks.
“Everybody has been talking about what the ECB could or couldn’t do. The ECB didn’t say anything. The only thing I can say today is still nothing.”
“It is not our intention to violate the monetary financing condition.”
“We want to maintain and keep the risk of this assessment with the national central bank so that they can bear the full risk of their choices. You can rest assured that this is my position. All this talk about the ECB sharing the losses is unfounded. But I can’t say what we can do until tonight after the euro group.”
The leaders of Greece’s main political parties have reached an agreement on austerity measures needed to secure a second international rescue program, Draghi said.
“I cannot say anything on how our holdings of Greek bonds will be treated.”
Euro-area finance ministers will meet in Brussels today to discuss a second Greek bailout. “We will have a full report on the agreement and also a discussion of the next steps.”
On the EU fiscal agreement:
“The fiscal compact is a major political event. It testifies of the willingness of member states to release sovereignty -- partly -- in the budget area.”
On ECB loans to banks:
“The use of these proceeds is a business decision. Our primary interest is in lending to the real economy. That’s where we see most of the credit tightening.”
“We are indeed concerned by this slowing down in credit. We have to wait, because part of it has to do with the funding pressure that banks anticipated for the first quarter of the year and which we removed with our first LTRO.”
On non-standard measures:
“There is no stigma whatsoever on these facilities.”
“Through our non-standard monetary policy measures we will continue to support the functioning of the euro area financial sector, and thus the financing of the real economy. Since the first three-year longer-term refinancing operation (LTRO) was conducted in December 2011 we have approved specific national eligibility criteria and risk control measures for the temporary acceptance in a number of countries of additional credit claims as collateral in euro system credit operations, which should lead to an increase in available collateral. Further details will be provided in a press release to be published today at 3.30 p.m. At the start of the current reserve maintenance period on 18 January 2012 the reserve ratio was reduced, freeing up additional collateral. As stated on previous occasions, all our non-standard measures are temporary in nature.”
On his first 100 days in office:
“I have respected the mandate of the ECB, which is to maintain price stability in the medium term. Inflation expectations have remained firmly anchored. Admittedly it’s a very short time to judge someone. It could have been much worse.”
On the economy:
“Real GDP growth in the fourth quarter of 2011 is likely to have been very weak. According to the survey data for the last two months, there are tentative signs of stabilization in economic activity at a low level. Looking ahead, we expect the euro area economy to recover very gradually in the course of 2012. The very low short-term interest rates and all the measures taken to foster the proper functioning of the euro area financial sector are lending support to the euro area economy. Moreover, stress in financial markets has diminished in response to our monetary policy measures, but also in response to the progress made towards a stronger euro area governance framework and intensified fiscal consolidation in several euro area countries. However, subdued global demand growth, the remaining tensions in euro area sovereign debt markets and their impact on credit conditions, as well as the process of balance sheet adjustment in the financial and non-financial sectors, continue to dampen the underlying growth momentum.
“This outlook is subject to downside risks. They notably relate to tensions in euro area debt markets and their potential spillover to the euro area real economy. Downside risks also relate to possible adverse developments in the global economy, higher than assumed increases in commodity prices, protectionist pressures and the potential for a disorderly correction of global imbalances.
“Euro area annual HICP inflation was 2.7 percent in January 2012, according to Eurostat’s flash estimate, unchanged from December. The average inflation rate for 2011 was 2.7 percent, mainly driven by higher energy and other commodity prices. Looking ahead, inflation is likely to stay above 2 percent for several months to come, before declining to below 2 percent. This pattern reflects the expectation that, in an environment of weak growth in the euro area and globally, underlying price pressures in the euro area should remain limited.
“Risks to the medium-term outlook for price developments remain broadly balanced. On the upside, they relate to higher than assumed increases in indirect taxes and administered prices, as well as increases in commodity prices. The main downside risks relate to the impact of weaker than expected growth in the euro area and globally.”
On monetary policy:
“Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. The information that has become available since mid-January broadly confirms our previous assessment. Inflation is likely to stay above 2 percent for several months to come, before declining to below 2 percent. Available survey indicators confirm some tentative signs of stabilization in economic activity at a low level around the turn of the year, but the economic outlook remains subject to high uncertainty and downside risks. The underlying pace of monetary expansion remains subdued. Looking ahead, it is essential for monetary policy to maintain price stability for the euro area as a whole. This ensures a firm anchoring of inflation expectations in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Such anchoring is a prerequisite for monetary policy to make its contribution to supporting economic growth and job creation in the euro area. A very thorough analysis of all incoming data and developments over the period ahead is warranted.”
“In spite of enormous challenges, the Irish government ought to be praised for the constant effort it makes on its reforms.”
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