Following is the text of European Central Bank President Mario Draghi from his monthly news conference in Frankfurt today:
MARIO DRAGHI, PRESIDENT, EUROPEAN CENTRAL BANK: 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 two percent 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, two percent 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 the 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 fulfillment by the EFSF/ESM of their role are necessary conditions - not sufficient, 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 percent 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 percent 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 percent 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 percent in June 2012, slightly higher than the 3.1 percent 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 percent 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 securitization) declined to 0.3 percent in June from 0.5 percent in May. As net redemptions of loans to non-financial corporations and households were observed in June, the annual growth rates for loans to both non-financial corporations and households decreased further in June, to minus 0.3 percent and 1.1 percent 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 normalization 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 2.5 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 labor 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 labor markets are preconditions for the unwinding of the existing imbalances and the achievement of robust, sustainable growth. It is now crucial that Member States implement their country- specific recommendations with determination.
We are now at your disposal for questions.
STAFF: Okay, thank you. (Inaudible) and please let’s not forget to present yourself and ask no more than two questions per media. Thank you. First call, (inaudible), please.
QUESTION: I am Alexander Mario]with (inaudible) from Italy. I wonder if you have discussed a possible reduction in interest rates and also a reduction in interest rates on deposits. And if you own negative deposit rates.
DRAGHI: I didn’t say how many questions each one is allowed to ask. Okay, we have discussed possible reductions in interest rates. But the Governing Council, in its entirety, decided that this was not the time and that’s it.
On the deposit - on the negative deposit rates, since many of you may be asking this question, let me say and stop there really that perhaps these are largely uncharged waters.
STAFF: Next question, (inaudible), please. Yes.
QUESTION: (Inaudible), be allowed two questions. First of all, when you are talking about the question of seniority will be addressed, presumably because bond purchases are kind of counterproductive if it is not addressed beforehand. So presumably we see the question of seniority be addressed before bond purchases? Or is that a wrong assumption?
And the second question, a lot of talk in the past two days about a grand master plan, a two pronged approach, how to stabilize the bond markets. Among other things, one of the ideas that has been floated today again in the (inaudible), that there could be a secondary buying of bonds by the ECB combined with a primary bond buying by the ESM or the EFSF, which is a bit odd because the EFSF, of course, can’t buy Spain and Italy at the moment. How much - give us an idea of how much truth is in this story - is it one of these fairy tales that markets in general sometimes love so much?
DRAGHI: The second one was so long, I forgot the first.
QUESTION: The seniority.
DRAGHI: Oh, the seniority, yes. Okay, let me reread the passage of my introductory statement because that basically answers your question. It says, “The adherence of governments to their commitments (in the fiscal reform, structural reforms and so on) and the fulfillment by the EFSF/ESM of their role are necessary conditions for some actions on the ECB side.” So the first thing is the governments have to go to the EFSF because, as I said several times, the ECB cannot replace governments or cannot replace the actions that other institutions have to do on the fiscal side.
“The Governing Council within its mandate to maintain price stability over the medium term and in observance of its independence in determining monetary policy,” which means that the goal of the EFSF is a necessary condition, but it is not a sufficient condition because the monetary policy is independent, “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 rest is - so that basically gives you the answer to your question.
I should say, over the coming weeks, we will devise, we will design the appropriate modalities for such policy measures. So many of the details will be worked out by the relevant committees within the ECB.
STAFF: Second row, please. Back in the center, second row. Right.
QUESTION: Yurhana Treet, Market News. I’ve got some questions on how you would actually deal with the response that you might buy.
Would you continue to sterilize all of those bonds? And also you said you would buy as much as needed to reach an objective. Would you actually publish that objective? Would you announce a cap?
My second question is do you think that this will actually be enough? Or do you think it might be wise to find a neutral way to grant the ESM access to ECB liquidity operations?
And then, perhaps one last question -
DRAGHI: Already you asked four questions in one question. So let me say that this thing - this concept - this guidance that we’ve given to the committees of the ECB differs from the previous program because that is your basically first question, because we have explicit conditionality here. And as a necessary condition, an adherence by governments and by euro area governance to its commitments.
Second, there is full transparency by all the countries where this will be undertaken, and about the amount.
And third, which is not something I said during the introductory statement, this effort is going to be focused on the shorter part of the yield curve, on the shorter part of the yield curve. So it is really which will introduce discipline also on the long part, but the effort of such will be focused on the shorter part.
So it is an effort which I am calling like this, which is very different from the previous SMP and it falls squarely in our mandate. It basically carries - is going to be carried out in the secondary market. And it doesn’t violate the provision of monetary finance at all. It falls squarely amongst the instruments of monetary policy.
And then as far as the rest you asked - you’ve asked, the monetary committee and the market committee and the risk committee will all together work and produce the - I’ll say all the needed details that we want to take an explicit form of decision. Okay, yes.
DRAGHI: Then you asked about the ESM banking license. I really - I must say I am a little surprised by the amount of attention that this received in the recent press, the recent public opinion following the statement.
Okay, but I mean after all, I did say at least twice that the present design of the ESM doesn’t allow not the issue - let me step back, it is not up to us to give a banking license. It is up the government. It is up to us to decide whether the ESM, even with a banking license, can actually be a suitable counter party eligible for being financed.
And I did say at least twice in the press conference, but also on other occasions, that the current design of the ESM does not allow to be recognized the suitable counter party. And we have a legal opinion of the ECB issued way back in February on this, which is, by the way, I think it has been published if I am not mistaken. So you can always look at that. So that is the ECB position on this.
STAFF: Okay, (inaudible) second row. The second row, yes.
QUESTION: (Inaudible). Just a question on Spain. I would like to know if the Council discussed the recent developments in Spain and maybe (inaudible) progress is made in Spain with its newest austerity measures.
And another question is whether your words regarding the actualization of the EFSF and the ESM also are in some way intended to, well, if need be, the current situation with Spain is in line with the ECB or whether actually the possibility of asking further help has been discussed and would be welcomed by the ECB.
DRAGHI: Look, no, we didn’t discuss the specific country situation. And it is true that I think Spain, like other countries, have achieved significant progress on a variety of problems, including fiscal consolidation. It is up to the relevant countries to decide whether they need and they want the help of the EFSF. Thank you
STAFF: Okay, your neighbor on the other side in the second row. Yes.
QUESTION: This is Kianna Underwood, Bloomberg News. Mr. Draghi, the measures you announced, do you have the full support of the Governing Council for that? I am particularly - I am interested in the position of the Bundesbank and Mr. Weidmann. You said that the size would be adequate. Can you tell me if that means the purchases will be unlimited, or whether you will actually have a limit in mind?
Coming back to the sterilization, I just want to clarify, am I understanding you correctly that you are considering not sterilizing the purchases?
And then I have a question on the ESM as well. You are insisting that in the current design, the ESM cannot be a bank index of ECB refinancing operations. Do them envision a scenario where the ESM is changed into an institution that would actually be able to comply with what is required? And I am thinking about the EIB especially. Thank you.
DRAGHI: Okay, I will start from the last question. I would say in the current design, that is what we have today. What we have today, we have a legal opinion by the ECB issued five months ago, if I am not mistaken, saying that, no, it is not suitable as a counter party.
On the sterilization, no, I don’t - you shouldn’t assume that we are not going to sterilize or won’t sterilize. This is exactly one of the dimensions. You have to understand, these operations are complex in the FX markets in a variety of ways. So the committees, the relevant committees, will have to work and tell us exactly what is right and what is not right.
So it is early to say whether they are going to be sterilized or not sterilized. We remain assured that we will be acting within our mandate that is to preserve price stability in the medium-term for the euro area. That is always to be taken into account.
Second - third thing, unlimited or limited, we don’t know. It just - basically, the statement - the introductory statement, and I’m really grateful to the governing country for this, endorses the remarks that I made in London about the size of these measures that need to be adequate to reach their objectives.
And fourth, the endorsement to do whatever it takes - again, for using the same words - whatever it takes to preserve the euro as a stable currency has been unanimous. But it’s clear and it’s known that Mr. Weidmann and the Bundesbank, although we are here in the personal capacity, we should never forget that they have their reservations about programs that you see (ph) buying bonds.
So the idea is now we have given a guidance. The monetary - the money policy committee, the risk committee and the market committee will work on this guidance, and then will take a final decision where the count - the votes will be counted. So far, that’s the - I think that’s a fair representation of our discussion today. Thank you.
STAFF: (Inaudible) please (inaudible).
QUESTION: Eva Kuhnen, Reuters. Mr. Draghi, the markets don’t seem to be very impressed. So when you said last week you do whatever -
DRAGHI: The market is impressed or was impressed or is not impressed. I didn’t understand. (Inaudible) impressed. You are - you are reading into action, into - okay.
QUESTION: It does not seem to be very impressed.
DRAGHI :Oh, doesn’t seem to be very impressed.
QUESTION: So when you said - when you said last week you would do whatever it takes to save the euro, what exactly did you have in mind? And you mentioned earlier that you did discuss other options. Could you maybe say what else you discussed?
DRAGHI: We - the word - the word is measures. Whatever it takes means two things. It means the list of measures. All the measures that are required, and it means that they are size to be adequate to reach their objectives. And so we are going - the various committee will now review the policy - no standard (ph) policy options and then will remit and will decide what to do.
But you see, there is no - there is not yet one country that has asked the EFSF to - to lead (ph). So are you ready to act now? Even if we were ready to act now, it wouldn’t be the ground for doing so. What we have expressed now is guidance, and it’s a strong guidance about strong measures that will be completed in their details in the coming weeks.
DRAGHI: The other options? There is no need to be specific. If you go back to the various LTROs that we’ve done, there is also a discussion about the collateral framework that is foreseen (ph) in September. There is a list of various options, but - that you can partially find in previous press conferences or in the ECB bulletin. They will be studied, explored, reviewed and utilized possibly if needed for a formal decision.
QUESTION: Claudio Fellani (ph) from (inaudible). My question is - I have only one question, but it’s a long and I apologize in advance. The LIBOR scandal have provoked an outcry -
QUESTION: LIBOR, as we say in Italy, has provoked an outcry for separating the banks. Tax payers don’t want to pay any cent more to bail out banks, which not only gamble, but which also rig the bets. In Britain, there is a real section (ph) calling for real, full banking separation a la Glass-Steagall, including the central bank. In the United States, there are already more than 80 congressmen who have signed a draft bill for a reintroduction of Glass-Steagall, and even German Finance Minister Schauble said this week he would not oppose structural reform.
Now since you, Mr, Draghi, are personally associated with the legislation which in Italy lifted the old banking separation regime, as we say (inaudible) the wisdom of (inaudible). Do you feel like joining Sandy Weill, the architect of the repeal of Glass-Steagall in the United States, in saying we made a mistake, we should go back to the full separation between commercial and investment banks? Thank you.
DRAGHI: Well if you actually were speaking apples with apples, I would say so, but you’re actually mixing pears with apples. The legislation to which you refer had nothing to do with the current discussion. We didn’t - we didn’t have investment banks that should be merged with commercial banks in Italy at that time. The only separation we had was between banks that could only do short term and banks that could only do long term.
And the biggest - the biggest advance that we made in the early ‘90s was basically tell banks that they could do both. And so the issue was not even considered at that time. And the only investment we had, which was Mediobanca at the time, stayed what it was, an investment bank. So the issue didn’t present itself. Thank you.
STAFF: Your neighbor please, Brian Blaxton (ph). Okay, afterwards. Yes, go ahead and present yourself.
QUESTION: (Inaudible), Financial Times. So my first question concerns how you go about measuring the degree to which the premier reflect convertibility risk. Now, is this the case that you think that it’s several percentage points worth of the spreads that reflect these risks, or is it something less significant than that? And my second question is were the other members of the governing council aware that you were going to make the remarks that you did last week about taking whatever action it takes before you made them?
DRAGHI: Well, let me - rather than respond to you on how we measure that - this risk premium and so on, which will also be the task of the committee’s, let me tell you that our greatest concern is with financial market fragmentation rather than assessing exactly the figure - a figure. And let me go through the various symptoms of financial market fragmentation that we have reviewed today in our governing council discussion.
If you look at money markets, the share of cross-border money market loans has decreased. It was 60 percent until mid 2011. It’s now 40 percent, and vice versa for the share of domestic money market loans. The non-domestic interbank deposits are at the lowest level since the beginning of 2008 for several countries. The increasing concentration of recourse to euro system providing operations in some countries is a further illustration of this segmentation.
The same use of - when you look at what sort of collateral banks present for their financing with ECB, there is definitely a significant increase in domestic collateral. There is a high share of domestic use of domestic buyers by domestic - of home buyers by - by investors. And it’s also - which in a sense reflects the use of self-originated marketable assets as a collateral.
The share of cross-border use of collateral within the euro area stands at around 20 percent today compared with 50 percent in 2006. There is a big divergence in general collateral repo rates between periphery and euro area sovereigns that started in late 2011. And we can go on with other signs of monetary fragmentation as far as bank funding is concerned, as far as sovereign bond markets and so on and so forth. We (inaudible) all the analysis are at your disposal if you are interested. So that is what we have to - we have to overcome, we have to repair, we have to change.
As far as my remarks in London, there is not one word of these remarks that had not been discussed in the governing - in the previous governing councils. So there has not been one word of these remarks that surprised my colleagues. Thank you.
STAFF: Your neighbor please, (inaudible).
QUESTION: Brian Blackstone with The Wall Street Journal. Last month when the ECB met, you said there wasn’t even a discussion of non-standard measures, and now you’re unveiling these objectives, these intentions. What happened in the last month? The crisis has had its ups and downs for the last two years. Was there anything specific that happened in the last month that frightened you?
And secondly, would the ECB consider buying private sector assets outside of just covered bonds, perhaps corporate loans, unsecured bank bonds? That’s not one of the tools that you’ve used in the past, but is this one of the options that you’ll be considering in the next few weeks? Thank you.
DRAGHI: Well, there wasn’t any specific instance that led us to - to have the discussion we had today. I wouldn’t point out to one single episode, but certainly one thing - if one really wants to - one thing was the sudden increase in the shorter part of the yield curve for several countries in the euro area, which for people who are - who know the markets is usually ominous.
But that was one sign which - but I wouldn’t point out only to that symptom only, because there were other symptoms of market fragmentation which tended to worsen the situation. So it’s not really very much a reaction to a specific thing that, as you said, might have terrified us, because we usually don’t act under terror, but under - under normal, cool analysis of facts. What was the other - your other question?
QUESTION: The private sector -
DRAGHI: No, there is reason to be specific as far as further non-standard measures are concerned. We - because we - basically the other part of the guidance is that the relevant committees should examine the other possible measures.
STAFF: The fourth row please now. The two questioners. Yes.
QUESTION: (Inaudible) it’s not really clear to me concerning the decision on the bond purchases the ECB may trigger. Was the decision anonymous or not? And if yes, maybe (inaudible).
DRAGHI: It was not a decision. It was a guidance, and it was a determined guidance for the committees to design, as the statement says, design the appropriate modalities for such policy measures. The voting was, as I said, was basically unanimous with one - with one reservation, with one position that reserved itself. And I responded to this question before.
QUESTION: Given the guidance, your detail (ph) -
DRAGHI: It says may undertake. You see, it’s very important to read carefully these words. It says the governing council may undertake outright open market operations of a size. So the governing council, if the necessary and sufficient conditions in its total independence of monetary policy operations, may decide to do certain things if these conditions are satisfied. This - this - I would call it this framework was endorsed by all the governing council members with one - with one exception.
QUESTION: So maybe -
DRAGHI: Okay. Second question.
QUESTION: Second question, related to bonds. I guess Greece bonds are maturing this month. Could you maybe actualize what you said in February that the ECB is ready to abandon the (inaudible).
DRAGHI: I’m sorry. I was not laughing at you. Just - go ahead. No, I understand.
QUESTION: So you said in February without violating the monetary financing of states that the ECB could have been done (ph) the profits on bonds and distribute to the central banks in percentage of the capital, and then the states could maybe use this money for - for their needs or could support Greece or something. So what can you say today, the perspective of this maturity of bonds regarding Greece, for example?
DRAGHI: Well, the decision that we’ve taken - so we earmarked these profits for distribution to the national central banks with a view to further redistributing them to their national governments, which could use them for Greece. That was the sequencing. As far as the future - you asked about future bonds coming do. We have to wait for the results of the troika visit in Greece. Thank you.
STAFF: Your neighbor, and then the fifth row afterwards.
QUESTION: Mr. Draghi, Derek Scally from the Irish Times. A popular interpretation of your London remarks was that Mr. Draghi is now resigning - has resigned to rushing in where politicians fear to tread. Were they wrong in their interpretation?
And secondly, on the Irish bank debt issue, a German news magazine paraphrased remarks you made at a dinner where you said that one cannot always answer such questions, Irish banking debt, through purely legal discussion. Without asking you to break the confidence of a dinner table discussion, how do you believe a question like the Irish bank debt issue can be answered to everyone’s satisfaction, if not in purely legal terms? Thank you.
DRAGHI: Well, I am sorry to say, but these words were not true. The reporting was incorrect. And I think we’ve sent - or we are about to send, have been asked to send a written response to their account because it was not correct.
So, on other thing you said, the other question was - I’m sorry, was about the popular interpretation of my remarks in London.
QUESTION: (OFF-MIKE) that the - on bond buying. The expectation because of the bond buying was that Mr. Draghi’s ECB is now resigned to stepping in where politicians fear to tread.
DRAGHI: Well, it’s a nice sentence but it’s not clear me if - it might have - first of all, it’s very hard. Going beyond our mandate, no. The answer is no. I was - if you find - if you get the transcript of these - of my speech in London, you find the words within our mandate at least, I don’t know, three, four, five times. So - and within our mandate, within our primary mandate of maintaining price stability over the medium term, this has been repeated on and on and on. So it’s - but certainly it is within our mandate to do whatever is in our power to preserve the euro as a stable currency. Thank you.
STAFF: Okay. The row behind with the yellow tie. Yes, please.
QUESTION: Marco (inaudible). Today an important German newspaper had the headline south European countries are hoping (ph) in Draghi. North Europeans are afraid of him. I’m not expecting you to comment on headline of course, but given also this reservation in the vote (ph) of today, I’m just wondering if you are worried that this is the perception in the public opinion and that can be a problem in the future.
DRAGHI: Thank you. I, frankly, if you ask myself, I don’t think I can - I’m kind of - I, frankly, I think, one, not me but the whole governing council should actually do the right things. Whether they inspire hopes or fear has to do more with, I’ll say, psychoanalysis than with economics. So the - what dictates the governing council deliberations is cool-minded analysis of the facts. Thank you.
STAFF: The right hand block, third row please. Yes?
QUESTION: Ian Traynor from the Guardian. Mr. Draghi, Prime Minister Monti at the moment is touring Europe with a fairly consistent and straightforward message, which is that basically the eurozone has to do something to bring down the costs of Italian borrowing. Would it be right to conclude from what you have been saying that in fact neither the ECB nor either of the two bailout funds can operate at all in the bond markets to affect that unless Mr. Monti requests a program and accepts a conditionality that has traditionally gone with these programs?
DRAGHI: Yeah. I think it’s right. I think that’s exactly the right way of reading this. It says - I’ll re-read it. The adherence of governments to their commitments and the fulfillment of the EFSF, ESM in their role are necessary conditions. Then the governing council within its mandate and in observance of its independence in monetary policy may undertake, and so on and so forth. So it’s exactly the right way to read it. Thank you.
STAFF: The left hand block, please, second row.
QUESTION: (Inaudible). Mr. Draghi, maybe I missed it, but can you say something about a time schedule? You said you’d give a guidance, but when do we get results? And the second question about inflation. You repeated - you repeated your assessment that inflation will come down in 2013. In recent weeks, we see some changes in oil prices. They are going up again. Commodity prices are going up. The euro is weakening, which drives input prices. We see higher wages in Germany. How big is the probability that the ECB will be wrong again on this question?
And can I ask a question of the vice president? Because there was an - I think it was an Italian newspaper today that reported that you are skeptical about bond purchases by the ECB. Maybe you can just comment on that. Thank you.
DRAGHI: Well, the first question is in a sense easy to answer. The when. When is when countries will be - governments will be - actually have fulfilled the necessary conditions, namely undertake fiscal, structural reforms applied to the EFSF with the right conditionality. And at that point, we may act if needed along the lines that had been illustrated in this - in this conversation I’m having with you.
On the second point about inflation, inflation is - is - is decreasing actually, as I said last time. And I repeated, it’s decreasing to some extent faster than expected. But there are some risks, both downside and upside. The upside risks are food prices are - don’t seem to be a major risk today for the euro area inflation for the reason that, first of all, they are viewed - so far they are viewed as one-time shocks.
Second, much of the food that is consumed in the euro area is produced by the euro area, and it - therefore it depends very much on agricultural prices. To some extent, there is not an immediate connection between what happens - the world price level and the agricultural prices. And so the inflationary - potential inflationary consequence of higher food prices are, at this time at least, are not viewed as likely or significant.
Then you have energy. And energy and certainly and the depreciation of the euro have pushed up, but as you see so far, we don’t see really any change in our - in what’s become our base-line scenario, namely of an inflation which goes at about 2 percent by the end of this year, and may go below 2 percent next year or even before the next year. So that’s the - but I want to stress with respect to this that the ECB remains the guardian of price stability. The ECB remains the guardian of price stability. And that remains its - its - its mandate.
Vitor, are you skeptical about bond purchases?
CONSTANCIO: I don’t know from what place this rumor could arise. I never spoke about the issue outside our own meetings, and I’m not going to do it now to answer you. I will just point out that as the president answered before, today this was approved unanimous with one exception, and it was not me.
STAFF: Okay. The same block, please, row number five.
QUESTION: Thank you. Mark (inaudible). First question is did you present your plan to heads of state before discussing it in the governing council or after discussing it, which would mean today of course? And the second question, on your - on - on your statement that you’re going to target short - the short end of the yield curve, why doing that? Because one would assume that if you target the longer end this might alleviate pressures for long term loans in the countries you’re targeting. Thank you.
DRAGHI: Yeah. The first question is no, we don’t plan any presentation of our monetary policy discussions to the heads of state. It’s not - it’s not conceived, it’s not thought, it’s not been discussed. It’s kind of a - so it’s - and this basically is because we are proud of our own independence, but also because maybe they’re not even interested in knowing it. I don’t know. But - but the point is basically we are independent and we don’t foresee presentations to the heads of state of our monetary policy measures.
The second point is why do we focus on the shorter part - the shorter time of the - the shorter - on the short end of the yield curve? Well, the main reason is that that falls squarely in - in the list of the monetary - the classical monetary policy instruments. Where in the short term is the spectrum, the more is close to money market operations.
But basically even right now we are already - we’re currently operating on maturies which may - with the LTRO of course, they extend to three years. But on normal operations, they go between six months, nine months, a year. So from this viewpoint, we wanted to in a sense restrict this to being monetary policy, classical monetary policy.
DRAGHI: No. We - we - no. I gave - today I gave you just a general indication, and also I gave you in a sense the philosophy behind this decision. But as far as the details and the analytics of this, as I said before, we have to wait for the work of the relevant committees.
STAFF: The block in the middle row, second row, please. Yeah.
QUESTION: (Inaudible). Mr. Draghi -
DRAGHI: I’m sorry, which -
QUESTION: (Inaudible). Mr. Draghi, I have the slight feeling that you are a bit rolling (ph) back today compared with your words in London. After you have - did this speech in London, there was a storm all over Europe in the media and in the markets. Was there any critic (ph) in the ECB concert (ph) today about the timing of your words in London? Because today you said that it will take some weeks until the committees will have worked out the details. Is it - was it necessary to do this speech at that time in London?
DRAGHI: Have you read the speech? No. Well then, if you have read it, there is no reference whatsoever to a bond buying program. And there was no criticism whatsoever in the governing council meeting, period.
DRAGHI: I can’t - I can’t make what the media write, as you know very well by the way. And you certainly wouldn’t want me to tell you what to write, but -
DRAGHI: No, no, no, no, no. Read the speech. The speech says - it doesn’t say anything about timing, bond buying programs, shorter term. There is nothing of that. The speech was simply - and if you want to know what is the philosophy, because certainly the tone was strong in that speech, and the - I would say the - the stance behind the speech was an affirmation that the euro area is a strong place in the world and that the euro is a strong currency, and it’s irreversible.
That is the substance, the zest of the speech I gave in London. And - and so - and of course, everything within our mandate, but everything that is adequate to reach the objectives. So this was clearly stated in London and it had some consequences because, after all, everybody wants to read what they want. And - and that’s it.
And today we are not rolling back, in fact. If I may say this, there was an endorsement by the governing council of the speech, and certainly of the tone of the speech. And you find this endorsement in the statement - in the statement. You can actually see there are similar words for certain things. Thank you.
STAFF: The first row, please. Yeah.
QUESTION: (Inaudible). I have many questions, but - but -
STAFF: Just two. Just two.
QUESTION: Just two. About the timing. If I understand (ph), well, I don’t know. So before government must move, must activate the EFSF and ESM in the bond market and then the ECB may be - is that the time, or together (inaudible) before the government and after the ECB or not?
The second, what is the meaning - real meaning that euro is irreversible? What’s the meaning? We will - is -
DRAGHI: On the first point, the first point is actually - is actually very important. Because we want to repair monetary policy transmission channels. And we clearly see a risk, and I’ll talk about this, a convertibility premium in some interest rates.
But we also know, and the governing council knows, that monetary policy will not be enough to achieve these objectives unless there is action by the governments. If there are substantial and continuing disequilibria and imbalances in the current accounts, in fiscal deficits, in prices, in competitiveness, monetary policy cannot fill this - this vacuum, this lack of action. And so that’s why conditionality is essential.
And - but the counterparty in this conditionality is going to be the EFSF. So action by the governments and by the euro area level is as essential for repairing monetary policy transmission channels as it is appropriate action on our side. That is the reason for having this conditionality. That’s one thing.
What is the meaning of irreversibility? Irreversibility means that it cannot be reverted, so you don’t go back to the lira or to the drachma or to whatever. That’s just - what’s what it means. So it stays. It stays. It stays. It’s pointless to bet against the euro. It’s pointless to go short on the euro. That was the message. It’s pointless because the euro will stay, and it’s going to be irreversible.
STAFF: Let’s take the two last questions. Yes, in this block, the - yeah. The two questioners.
QUESTION: Jack Ewing from the International Herald Tribune and New York Times. I think you said you’re going to address this in your early (ph) issue. I’m trying to think of how you might do that without just taking losses on your existing holdings of Greek bonds. Am I wrong about that? Is there some other alternative?
And secondly, I think you said you were going to be disclosing the size and the countries of bond purchases. Will you also be disclosing what you’ve done already, and could you even maybe give us some amounts right now? Thank you.
DRAGHI: Thank you. What - I’m not sure I understand the last part. We have disclosed how much we bought with the S&P. You say we disclosed - yeah. Oh, sure. At the time - when - when all this will be settled, there will be full disclosure. This I think is the best policy option. But we have to sort of have all the pieces in place on our - on our table. That’s - that’s one thing.
On the second thing, again, I read - I read this statement. It says it may undertake outright open market operations of a size adequate to reach its objective. In this context, in this context, the concerns of private investors about seniority will be addressed. Thank you.
STAFF: Your neighbor behind, please?
QUESTION: Klaus (inaudible) Television. Mr. President, I have to come back to your remarks in London last week. I’m a bit surprised. If I understand you right, you’re arguing that markets and the media have misinterpreted your remarks there, at least to a - at least to a certain extent.
I’m surprised that you say this because if you do these remarks in London, not anywhere but in London, shouldn’t you expect that the markets exactly interpret in the way they did, and wouldn’t it be perhaps appropriate to have been (ph) a bit more careful there? Thank you.
DRAGHI: No, it would not be actually. I like this remarks very much. And as you know, they came - they came out very, very well. And there was no - no reason to absolutely, and they were not misinterpreted. Simply they were actually - markets took their actions based on their expectations following these remarks.
That’s what happened, and these expectations are what they are. And today we had a meeting and we discussed and we have given guidance which probably will concretize in certain decisions that will be taken. So absolutely, no. I’m actually quite happy about these remarks. Thank you.
STAFF: Thank you. Thanks a lot.
SOURCE: European Central Bank
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