Following is the text of European Central Bank President Mario Draghi’s comments 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 president of the Eurogroup, Prime Minister Juncker, and 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. Owing to high energy prices and increases in indirect taxes in some euro area countries, inflation rates are expected to remain above 2 percent throughout 2012, to fall below that level again in the course of next year and to remain in line with price stability over the policy-relevant horizon.
Consistent with this picture, the underlying pace of monetary expansion remains subdued. Inflation expectations for the euro area economy continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2 percent over the medium term.
Economic growth in the euro area is expected to remain weak, with the ongoing tensions in financial markets and heightened uncertainty weighing on confidence and sentiment. A renewed intensification of financial market tensions would have the potential to affect the balance of risks for both growth and inflation.
It is against this background that the Governing Council today decided on the modalities for undertaking outright monetary transactions in secondary markets for sovereign bonds in the euro area.
As we said a month ago, we need to be in a position - in the position to safeguard the monetary policy transmission mechanism in all countries of the euro area. We aim to preserve the singleness of our monetary policy and to ensure the proper transmission of our policy stance to the real economy throughout the euro area.
OMTs will be - will enable us to address severe distortions in government bond markets, which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro. Hence, under appropriate conditions, we will have a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area.
Let me repeat what I said last month. We act strictly within our mandate to maintain price stability over the medium term. We act independently in determining monetary policy. And the euro is irreversible.
In order to restore confidence, policymakers in the euro area need to push ahead with great determination with fiscal consolidation, structural reforms to enhance competitiveness and European institution-building. At the same time, governments must stand ready to activate the EFSF/ESM in the bond market when exceptional financial 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 for our outright transactions to be conducted and to be effective. Details of the outright monetary transactions are described in a separate press release, which I’m going to read shortly.
Furthermore, the Governing Council took decisions with a view to ensuring the availability of adequate collateral in Eurosystem refinancing operations. The details of these measures are also elaborated in a separate press release, which I’m going to read shortly - I’m going to read shortly.
Let me now explain our assessment in greater detail, starting with the economic analysis. Recently published statistics indicate that euro area real GDP contracted by 0.2 percent, quarter on quarter, in the second quarter of 2012, following zero growth in the previous quarter. Economic indicators point to a continued weak economic activity in the remainder of 2012 in an environment of heightened uncertainty.
Looking beyond the short term, we expect the euro area economy to recover only very gradually. The growth momentum is expected to remain dampened by the necessary process of balance sheet adjustment in the financial and non-financial sectors, by the existence of high unemployment, and by an uneven global recovery.
The September 2012 ECB staff macroeconomic projections for the euro area foresee annual real GDP growth in a range between minus 0.6 percent and minus 0.2 percent for 2012 and between minus 0.4 percent and 1.4 percent for 2013. Compared with June 2012 Eurosystem staff macroeconomic projections, the ranges for 2012 and 2013 have been revised downwards.
The risks surrounding the economic outlook for the euro area are assessed 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. These risks should be contained by effective action by all euro area policymakers.
Euro area annual HICP inflation was 2.6 percent in August 2012, according to Eurostat’s flash estimate, compared with 2.4 percent in the previous month. This increase is mainly due to renewed increases in euro-denominated energy prices.
On the basis of current figures - or current futures prices for oil, inflation rates could turn out somewhat higher than expected a few months ago, but they should decline to below 2 percent again in the course of next year. 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.
The September 2012 ECB staff macroeconomic projections for the euro area foresee annual HICP inflation in a range between 2.4 percent and 2.6 percent for 2012 and between 1.3 percent and 2.5 percent for 2013. These projection ranges are somewhat higher than those contained in the June 2012 Eurosystem staff macroeconomic projections.
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. The main downside risks relate to the impact of weaker than expected growth in the Euro Area, particularly resulting from a further intensification of financial market tensions, and its effects on the domestic components of inflation. If not contained by effective action by all Euro Area policymakers, 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 increased to 3.8 percent in July 2012, up from 3.2 percent in June. The rise in M3 growth was mainly attributable to a higher preference for liquidity, as reflected in the further increase in the annual growth rate of the narrow monetary aggregate M1 to 4.5 percent in July, from 3.5 percent in June.
The annual growth rate of loans to the private sector remained weak at 0.5 percent in July. Annual growth in MFI loans to both non-financial corporations and households remained subdued, at minus 0.2 percent and 1.1 percent, respectively, for financial corporations and households.
To a large extent, subdued loan growth reflects a weak outlook for GDP, heightened risk aversion, and the ongoing adjustment in the balance sheets of households and enterprises, all of which weigh on credit demand. Furthermore, in a number of Euro Area countries, the segmentation of financial markets and capital constraints for banks continue to weigh on credit supply.
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.
Although good progress is being made, the need for structural and fiscal adjustments remains significant in many European countries. On the structural side, further swift and decisive product and labor market reforms are required across the Euro Area to improve competitiveness, increase adjustment capacities, and achieve higher sustainable growth rates. These structural reforms will also complement and support fiscal consolidation and debt sustainability.
On the fiscal front, it is crucial that governments undertake all measures necessary to achieve their targets for the current and coming years. In this respect, the expected rapid implementation of the fiscal compact should be a main element to help strengthen confidence in the soundness of public finances. Finally, pushing ahead with European institution- building with great determination is essential.
Now, I will now read the technical features of outright monetary transactions.
As announced on the 2nd of August, 2012, the Governing Council of the European Central Bank has today taken decisions on a number of technical features regarding the Eurosystem outright transactions in the secondary sovereign bond markets that aim at safeguarding an appropriate monetary policy transmission and the singleness of the monetary policy. These transactions will be known as outright monetary transactions and will be conducted within the following framework.
First, conditionality. A necessary condition for outright monetary transactions is strict and effective conditionality attached to an appropriate European Financial Stability Facility-European Stability Mechanism - so EFSF-ESM - program. Such programs can take the form of a full EFSF/ESM macroeconomic adjustment program or a precautionary program called Enhanced Conditions Credit Line, ECCL, provided that they include the possibility of primary market purchases by the EFSF and, possibly later, the ESM.
The involvement of the IMF shall be sought, also for the design of country-specific conditionality and the monitoring of such programs. The Governing Council will consider outright monetary transactions to the extent that they are warranted from a monetary policy perspective, as long as program conditionality is fully respected, and terminate them once their objectives are achieved on or when there is a non-compliance with the macroeconomic adjustment or the precautionary program.
Following a thorough assessment, the Governing Council will decide on the start, continuation, and the suspension of outright monetary transactions, in full discretion and acting in accordance with its monetary policy mandate. And this is for conditionality.
Now, the coverage. Outright monetary transactions will be considered for future cases of EFSF/ESM macroeconomic adjustment programs or precautionary programs, as specified above. They may also be considered for member-states currently under a macroeconomic adjustment program when they will be regaining bond market access.
Transactions will be focused on the shorter part of the yield curve and in particular on sovereign bonds, with a maturity of between one and three years. No ex ante (ph) quantitative limits are set on the size of outright monetary transactions.
The third part considers the creditor treatment. The Eurosystem intends to clarify in the legal act concerning outright monetary transactions that it accepts the same IE pari passu (ph) treatment as private or other creditors with respect to bonds issued by Euro Area countries and purchased by the Eurosystem through outright monetary transactions in accordance with the terms of such bonds.
(inaudible) the liquidity created through the outright monetary transactions will be fully sterilized.
Then we have transparency. Aggregate outright monetary transactions holdings and their market values will be published on a weekly basis. Publication of the average duration of the outright monetary transactions holdings and the breakdown by country will take place on a monthly basis.
Finally, following today’s decisions - a decision on outright monetary transactions, the Securities Market Programme - otherwise called SMP - is herewith terminated. The liquidity injected through the SMP will continue to be absorbed as in the past, and the existing securities in the SMP portfolio will be held to maturity.
I’m sorry. But I’m going to read the third press statement -
- about measures to preserve collateral availability.
So we - we had changed in eligibility for central government assets. The Governing Council of the ECB decided to suspend the application of the minimum credit rating threshold in the collateral eligibility requirements for the purposes of the Eurosystem’s credit operations in the case of marketable debt instruments issued by - issued or guaranteed by the central government, and credit claims granted to or guaranteed by the central government, of countries that are eligible for outright monetary transactions or are under an E.U.-IMF program and comply with the attached conditionality as assessed by the Governing Council.
The suspension applies to all outstanding and new assets of the type described above.
We’ve also decided that marketable debt instruments denominated in currencies other than the euro, namely the U.S. dollar, pound sterling, Japanese yen, and issued and held in the Euro Area, are eligible to be used as collateral in Eurosystem credit operations until further notice. This measure reintroduces a similar decision that was applicable between October 2008 and December 2010, obviously with appropriate valuation markdowns. And these measures will come into force with the relevant legal acts.
STAFF: OK, we will start with the questions. Just tell you before that the schedule of the president is very tight, and we need to finish at 3:30. No more than two questions per media, and present yourself, please. First question, yes, block one, first row? Yeah.
QUESTION: Hi (inaudible) from the EU Observer. My question regards the vote today. Was it unanimous? And if not, what does it mean? Thank you.
DRAGHI: Well, it - it was not unanimous. It doesn’t mean that it was not unanimous. There was one dissenting view. You - we don’t - we don’t disclose the details of our workings. It’s up to you to guess.
STAFF: OK, thank you. Next question, please, yes, on the second row.
QUESTION: (inaudible) Mr. Draghi, you repeated that the euro is irreversible. So - yeah, thank you. What (inaudible) democratic (inaudible) to say that? I’ve looked it up in the treaties.
DRAGHI: Sorry, what?
QUESTION: What gives you the democratic legitimation, the authority to say that? Because I have looked it up in the treaty. It doesn’t say anything that it’s - the role of the ECB to decide what kind of currency the European countries have. Yeah. So, thank you.
DRAGHI: Well, the - what I said exactly is that we will do - and I’ll repeat what I said in London the first time - we will do whatever it takes within our mandate - within our mandate to have a single monetary policy in the Euro Area and to maintain price stability in the Euro Area and to preserve the euro. And we say - we say that the euro is irreversible. So unfounded fears of reversibility are just what they are, unfounded fears. And this - we think this falls squarely within our mandate. Thank you.
STAFF: OK, block two, please, the first row.
QUESTION: Silvia Wadhwa, CNBC (inaudible) warned the other day about the - what they call - pardon me - the lira-zation of the euro, moving away from a deutschmark culture to a lira culture. The FDP wants to protest the decisions you’ve taken today, because they say they’re in breach with Article 123 of the E.U. treaty of financing governments. Can you explain to us why they’re wrong?
DRAGHI: Well, as far as the lira-zation or whatever, I think that the voting today shows a - I would say - shows it by itself. It shows it’s not only the lira or the former lira members or other, but it’s basically the almost unanimous decision of the Governing Council.
So it’s - first of all, I would not identify this with this caricature of being a southern cabal (ph) or an Italian thing (ph) just no (ph). It’s not. It’s the Governing Council that - in its almost unanimous decision has taken this - this measure.
Second, no, we don’t - we are sure that we are acting within our mandate, that we are not violating Article 123. It’s pretty explicit. It says for purchase on the primary market, this is a violation, not for purchase on the secondary market, as I’ve stated this program will work.
And just incidentally, outright purchases of bonds are - are conceived - are identified in the Article 18 of our statute, of the ECB, amongst the various possible tools that our monetary policy has and can use. So we are not - we’re not creating here any new thing. Thank you.
STAFF: OK. The same block, first row still, other questions, please.
QUESTION: (OFF-MIKE) hello? (inaudible) with newspaper. Mr. Draghi, how can you be sure that the fact that the monetary (inaudible) of the ECB seems to be not - to not be reaching big part of the euro zone is really a problem of monetary transmission and not maybe a problem of liquidity trap?
DRAGHI: Well, we have - we have substantial, significant, important evidence that the monetary - the European monetary area now is fragmented. We have - we see this from a variety of indicators, not only the level of yields, the yield spreads, but also volatility, liquidity conditions especially, I would say, in many parts of the Euro Area.
So the actions that we’ve decided today are geared to repairing monetary policy transmission channels in a way that our standard monetary policy can address what their primary objective is, that is to say, maintaining price stability. A way of saying it is that these decisions are necessary to restore our capacity to pursue the objective of price stability in the Euro Area, are necessary to restore the singleness of monetary policy in the Euro Area. Thank you.
STAFF: OK, second - second row, block two, Jeff, yeah, Jeff and then -
DRAGHI: You know everything in advance, so there’s no point for me to answer, no?
QUESTION: There are many things I don’t know. On the maturity of the assets that you would intend to purchase under the OMT, you said up to three years, between one and three years. Could you explain, does that involve assets, bonds that have a residual maturity of that amount of time, i.e., a 10-year bond that has two or three years left to run, as well as ones with safe maturity (ph)? Is that time?
And then my second question is about the conditionality aspect. Now, you mentioned that the OMT would be suspended if countries -
DRAGHI: No (OFF-MIKE)
QUESTION: - didn’t fulfill the necessary condition set out in the MOU. Now, given that these purchases are explicitly for monetary policy purposes, does this mean that you will suspend the ECB’s independence if the countries don’t fulfill the conditions? I don’t quite understand this - this contradiction. Maybe you could elaborate there for me. Thank you.
DRAGHI: Well, on the first - on the first question, the three is - yes, it’s to be understood in this - in the way you mentioned. And it’s three years, because it seemed to us the most effective maturity to sort of extent (ph) to target the maximum, most effective maturity. It’s close to our short-term policy rates. It affects also the medium-term yield curve. It’s close to the rates that are being used to lend to the private sector.
It’s, in a certain sense, similar to the - to the maturity we’ve used for the LTROs. So it has a lot of - also, in a sense, it - in a very indirect way, it decreases concerns about our seniority over the bondholding, so there are many good reasons for choosing - choosing the three years.
On conditionality, I think this deserves a - just two words. The assessment of the Governing Council is that we are in a situation now where you have large parts of the Euro Area in what we call a bad equilibrium, namely an equilibrium where you have self-fulfilling expectations - you may have self-fulfilling expectations that generate, that feed upon themselves, and - and generate adverse, very adverse scenarios.
So there is a case for intervening to, in a sense, break these expectations, which, by the way, don’t concern only the countries, the specific countries, but the whole Euro Area as such. But then - and this would justify the intervention of the central bank. But then we should not forget why countries have found themselves in a bad equilibrium to start with. And this is because of policy mistakes.
That’s why we need both legs to fix, in a sense, this situation, to move from a bad equilibrium into a good equilibrium. If the central bank were to intervene without any action on the government side, without any conditionality, it would not be effective. It would not be effective. And it would lose its independence.
At the same time, we see that we are in a bad equilibrium, and therefore, policy action (inaudible) doesn’t seem to produce (inaudible) to produce in a relatively medium time, medium term, the results for which it is - it is geared. So that’s why we need both legs for this action. And I think hope this answers his question.
STAFF: OK, your neighbor (inaudible) please.
QUESTION: Johanna Treeck, MNI. In your statement - I’ve got also a question on the conditionality - you say that involvement of the IMF shall be sought. Does that mean it’s a firm condition or just the preferred scenario, that the IMF will be involved? My second question is, do I understand you correctly that you will retain your senior status (inaudible) under the SMP and all other bonds held by the Eurosystem? And finally, did you discuss interest rate changes at your meeting today? Thank you.
DRAGHI: OK. The IMF - the IMF involvement is sought. We cannot dictate to the IMF what they should do. They are an independent institution. So they are sought, and their involvement is sought, and it’s sought for the policy - for the design of the policy conditionality, but also if the board of the IMF in its independence and the management of the IMF, the MD (ph), in its independence want to participate with the program, they will also be more than welcome.
So this is definitely the preferred scenario. Let me say one thing, however, because I can read the question you have in your mind. Is this a condition sine qua non? Let me just say one thing, which is actually quite important, in defining, in saying why the ECB’s retaining its independence all throughout this.
We have given a framework for conditionality to governments. This framework has been defined in a broad - in broad lines, but it’s very much up to the governments themselves and to the union - to the European Union, the commission, and the IMF, to decide exactly about the precise shape of this conditionality, and the Governing Council will retain its full discretion and its full independence in deciding about considerations that have to do with monetary policy. That’s very important.
This, what we have in place today is an effective backstop to remove tail risk from the Euro Area. We should understand this. But the ECB will retain its independence throughout this.
The second point was the seniority. This statement about outright monetary purchases does not apply to the SMP holdings.
And finally, on the rates, we discussed rates, but I would say the decision was that it was not the right time. And the reason is, in a sense, given in an introductory statement we - when we decided last time to lower rates, we had anticipated this weakening of the - of the business cycle, so in a sense, the monetary policy decision we took last time already reflected our anticipation of this. Thank you.
STAFF: OK, the third row, please, the same block, yes.
QUESTION: Eva Kuehnen from Reuters. Mr. Draghi, will the purchases be unlimited in - in amount and time? And my second question is, Spain is facing a huge refinancing hump at the end of October. And will the ECB’s new program be up and running in time for this?
DRAGHI: Well, the first question is - there are no example limits (ph) for the amount of outright monetary transactions. And the size is what I said in my, I think, second speech or first speech. I said it is going to be adequate to reach our objectives.
On Spain, on Spain, it’s really - I mean, we designed now (inaudible) a road, and it’s in the hands of the government and the hands of the euro group and the hands of the government of Spain and the governments of Europe, of the Euro Area, actually.
STAFF: OK, your neighbor, please.
QUESTION: (OFF-MIKE) Scott Solano, dpa-AFX. Mr. Draghi, do you foresee the ECB possibly buying Spanish bank debt in the near future and maybe even corporate debt?
DRAGHI: Frankly, we - we’ve just taken a very important decision for - for - I think for the moment for coping with the crisis. I said it’s a fully effective backstop for removing the tail risk of Europe, and I think I wouldn’t want to speculate on other measures as - as up to now, at least. Thank you.
STAFF: OK, just in front of you, the lady. Yeah.
QUESTION: (OFF-MIKE) CNBC Turkey. And I have two questions, Mr. Draghi. First of all, has there been a discussion in today’s meeting for any other liquidity program, like an LTRO? And the second question is, all the global markets are waiting - were waiting for this today, like today’s decision, and even the Turkish central bank was waiting for that. So does this make, like, pressure on you in deciding these kind of things? Thank you.
DRAGHI: Well, thank you. No, there was no discussion on LTRO. And obviously, we all feel - we all have our under pressures, not only me, but the Governing Council. We’ve taken very important decisions today for - also for (inaudible) for the ECB as an institution, so we’re fully aware of this. Thank you.
STAFF: Let’s go to block three, third row, please (inaudible)
QUESTION: (OFF-MIKE) Financial Times. Mr. Draghi, I think I’m right in saying in the statement there that you’re explicitly not providing any kind of level at which you think a bond yield of a country that applies to this is excessive. In fact, the language seems to basically say you’ll know when it’s there and then you’ll do it and then you’ll tell us about it afterwards. Is that broadly it? And is there any more detail you can give us in terms of the work that the experts were doing over the last few weeks to try and figure out how you decide when - when a bond is - is suffering from that market, sorry, that convertibility risk?
And a second question. Since this is all designed to protect the transmission mechanism or repair it, would you say that the transmission mechanism is also broken in a sense in Germany, where perhaps the bonds have - are suffering from a sort of convertibility premium? And will you be doing anything to fix that? Thanks.
DRAGHI: The answer in your last question is, it’s a general - bond markets are distorted in the Euro Area. They are distorted in all directions. And this is one of the causes of the impairment of monetary policy transmission.
And that’s really the objective of this program. It’s repairing monetary policy transmission and recreate the singleness of monetary policy for the Euro Area.
Now, the specific question you had, whether we had in mind a specific yield target. The answer is no. No. Just because the - repairing monetary policy transmission is a complex concept, so we’ll be looking at a variety of issues. The level of yield still (ph) is one, but also spreads, CDS spreads, BDAS spreads (ph), condition - more generally, the conditions of liquidity.
So we have - we have a variety of indicator - volatility is also very important in - as far as the indicators that we - we plan to take into consideration in planning our interventions.
STAFF: Same block, first row, Brian, please, Brian Blackstone.
QUESTION: Brian Blackstone with the Wall Street Journal. Under the new OMT, will the purchases continue to be conducted by the national central banks according to the capital key? And will they take the risks associated with these purchases according to the capital share that they have of the ECB?
And my second question is, this is kind of the third - this is kind of the third attempt at making a bond purchase program work. This is kind of a third attempt to make a bond purchase program work. You did it in May 2010. You did it again in August of 2011. They didn’t seem to work. What makes you think or why should people be convinced that this third attempt will - will work? Thank you.
DRAGHI: Well, yeah, the answer to the first question is yes. And the second question is - is actually - is actually very, very important. I mean, we certainly discussed that.
I would - by the way, I would disagree that the other two programs have not worked in such a kind of decisive way, but that’s - let me talk about the present. The present program’s very different, very, very different from the - from any other program we had in the past.
First of all, we have this conditionality element. That’s - that’s - I would say that’s the most important difference. That’s the most important difference, because it - it really puts together our intervention with an ownership of the economic program that a certain country has by the country’s government, but also by the other governments that have to vote in favor of an EFSF intervention. That is one of the differences, and I think it’s probably the most important.
The second one is that there is going to be much greater transparency. As I’ve read before, we publish - we publish the holdings of the - of the OTM, the duration, the issuer, the market value, so there’s going to be much more transparency.
The third is the duration is different. And the fourth is the explicit statement that we will accept pari passu treatment with the other creditors. So it’s - there are very many differences from the previous ones, which lead us to think that it will - it will actually work.
STAFF: OK, block two, the fourth row, please, fourth row, yeah.
QUESTION: Yes (inaudible) two questions, please. Some analysts thought that you will remain (inaudible) today, not giving (inaudible) because there are some important issues during the month to come, the first one is the expected decision of the constitution accord (ph) (inaudible) regarding the claim against ESM. To what extent this topic or this issue influenced the decision today? Thank you.
And the second one, unlimited bond purchases is something very new regarding SMP in the past, now we have unlimited purchase. What’s this rationality of this? Is it to say, look, guys, we spend more than 200 billion euros to buy these bonds and still the monetary policy is not transmitted, I mean, the measures? Is it to a better functioning of the monetary policy transmission that you decided this, which is a big step? Thank you.
DRAGHI: Thank you. Thank you. No, the - on the first question, really, we - we - we go on - we’ve decided in total independence, and we will be processing the requests when they - when they will come. There was no discussion at all of other institutions taking decisions which they will take, obviously (inaudible) in complete independence.
On the second point is, yes, we think - we think that to have an ex ante - an ex ante unlimited - ex ante unlimited size is actually adequate to reach our objectives. Thank you.
STAFF: OK, thank you (inaudible) your neighbor, and then the first row, and then (inaudible)
QUESTION: Thank you, Mr. Draghi. Arthur Beesley from the Irish Times. I have a question in relationship to Ireland. Are you in any way concerned about the tensions and in-fighting in the Irish coalition over the forthcoming budget? And, secondly, what remains to be done for Ireland to secure a debt relief deal? Thank you.
DRAGHI: Thank you. I think you’re asking me too much. The - I think so far - I mean, the Irish government has been an exemplar model of compliance with the macroeconomic adjustment program. And I’m confident that whatever the tensions, this will continue to be so.
On - on the second question, I - I have no news to give you, really. Thank you.
STAFF: OK, thank you. The first row, please, yes, on the same block (inaudible) thank you.
QUESTION: Mr. Draghi, I’m (inaudible) when I listen to your words, your speech, I thought that is quite much (inaudible) in it. I’m quite surprised. But outside, there is much (inaudible) on you to put less (inaudible) into your statements in the future. I fear that that will happen. What do you think?
DRAGHI: Oh, I mean, I am what I am, really. And -
If - I think - no, I think, really, it’s - there is no - one - one thing that I think is required for this job for me and my colleagues in the Governing Council is that you have to think with your head. And external pressures really don’t have a role in your decision-making.
QUESTION: (OFF-MIKE) I mean (inaudible) Mr. Draghi -
All the - all the conditionality, you talked about conditionality all the time. Second word was conditionality. I’m a German. I think this is really great, great approach you make, but you know the markets, you know all these markets putting pressure on you and your colleagues, and (inaudible) from other countries are sitting here. I fear that in the coming weeks and you will sit again in four weeks - we’re sitting again, we will have the press conference. I hope that this conditionality will stay and you don’t go down (inaudible) this point of conditionality.
DRAGHI: No, I think my response is certainly, certainly. And as I said before, you know, all of us are convinced that - all the Governing Council is convinced that - that, really, you need two legs for making it work. We’re all convinced that just one leg - and we - and as you said - as you said, Brian, before, we had the experience, the previous experience, and it was one leg, basically, and that didn’t work. So we need - we need both for to make it work.
And I think this is a general conviction. Again, I - I think there is - unfortunately, a mistaken caricature, especially, I would say, in this country, about what the Governing Council - how the Governing Council works. But it’s not - it’s not correct. So -
STAFF: Your neighbor, please.
QUESTION: (inaudible) Mr. President, the SMP was of temporary nature. I didn’t understand quite well if this new OMT is there to stay forever? Or is it - or you have a limit on it? This is first question.
And second question, yesterday, there was - there were some voices in the market that there was a north-south discussion inside the ECB. Somebody wanted to - would like to have very severe conditions and somebody else would like to have light conditionalities. Could you explain this, please, if it’s true? And what does it mean, even if it’s not true?
DRAGHI: Well, no, I think -
It’s very - I mean, that’s very difficult to explain if it’s not true. But -
But if I can, first, the - the - about the size. I said there is no ex ante quantitative limit to these interventions because we want this to be perceived as a fully effective backstop that removes tail risks from the Euro Area. We want this.
But at the same time, could it - I mean, if we reach our objectives, why should we continue doing so? If governments or countries do not comply, why should we continue doing so? So these are the two conditions for exiting. So that’s pretty clear now. And - and as I said, we go back always to the reasoning that we have to have two components for this - for this backstop to work.
Now, on this north-south, I think it really was - again, an unfair characterization of this. There are discussions about conditionality. They were not absolutely - perhaps I have a low sense of drama, but they were not dramatic. People had differences of views, but in the end, we converged. And it was, as I said, I mean, a very, very massive majority of the Governing Council on this concept that I’ve just described to you.
STAFF: OK, your neighbor, and then back to block one for the last question.
QUESTION: Alessandro (inaudible) from Italy. I wonder if this - it’s a cause of discomfort, the fact that systemically you have this one opposition to most of the decisions you’ve taken lately, and if you think it’s appropriate that the same opposition is then expressed publicly, sometimes almost simultaneously or immediately after the decisions are announced by this party.
DRAGHI: Well, thank you. I think in my - in my job as president, I’ve been blessed by this almost unanimity that really the ECB and the very important and fundamental decisions that we have taken in the recent - in the last few months, as a matter of fact, because - so the - and there is nothing I would wish more than having a total unanimity, of course. So I’m looking forward to having that. Thank you.
STAFF: OK, block one, please, the fourth row.
QUESTION: (OFF-MIKE) from German television (inaudible) Mr. Draghi, would you agree to the statement that the ECB can only buy time with your OMT actions in order that politicians solve the crisis? And are you confident that political leaders in the euro zone use this time effectively?
Second question, polls show a lack of trust in German public in you as the president of the ECB. How would you - how do you want to regain this confidence? Thank you.
DRAGHI: On the first point is - as I said it several times today - governments have to undertake the policy reforms. We are convinced that there is no intervention by the central bank, by any central bank that is actually effective without the concurrent policy action by the government. And, frankly, if we look elsewhere in the world, we see exactly the same. We see that if there is no concurring action by the government, the effects of these interventions are not - are not very strong.
On the other thing, well, I think the - in the end, the proof is in the pudding. And if - if the - really, if the action of the European Central Bank under my presidency will maintain price stability, as it has done so far, and as my predecessor has done for his eight years, I think the trust will be regained. Now (inaudible) only one year, of course, so it’s too early.
STAFF: Your neighbor, please?
QUESTION: (inaudible) newspaper. Mr. Draghi, I want to ask if the inclusion of the figure of the precautionary program was made (inaudible) countries like Spain or Italy who has (inaudible) idea to go under a full macroeconomic adjustment program.
DRAGHI: No. No. The answer is no. It was - it was basically the common view that that provides - that together (inaudible) not only that, of course. You also have the possibility (inaudible) program, full macroeconomic adjustment program, and they were (ph) considered the two forms of broad conditionality and involvement of all the other Euro Area governments.
DRAGHI: (inaudible) yes.
QUESTION: Yes, but, Mr. Draghi, that doesn’t mean a soft bailout fear (ph)?
DRAGHI: It’s what does it mean?
QUESTION: A soft bailout fear (ph).
DRAGHI: Oh, no, not at all. You should look at the conditionality of the ECCL. Not at all. It’s a full macroeconomic conditionality. And it would also see the very light involvement (ph) of the IMF.
STAFF: The row behind, please, Jack Ewing.
QUESTION: Jack Ewing from the International Herald Tribune and New York Times. Mr. Draghi, I just wondered if I could ask you about what you see as the long-term implications for European Monetary Union of the steps that you have taken -
DRAGHI: Sorry, the long term -
QUESTION: The long-term implications for EMU, for European Monetary Union, as a result of the steps that you’ve taken today. You wrote a week or so ago about the future structure of EMU. Are you, in effect, pushing governments in that direction with this step, in the sense to - to get relief from the ECB, they really have to push in a federalist direction towards a more integrated European Union? If that’s (OFF-MIKE)
DRAGHI: Well, I - I think - I think that would be a very ambitious objective. We are trying to do something which we believe is very important for the Euro Area and for price stability, which is to repair monetary policy transmission channels in the Euro Area. I think that’s our job.
We are trying to undertake this job in the best of our capacities. And whether this will have implications on the broader political destinies of the Euro Area, this is, in a sense, very much in the hands of our leaders and much less in the hands of central bankers.
STAFF: (inaudible) please.
QUESTION: I wonder if you could possibly comment on when -
STAFF: Could you please introduce yourself, please?
QUESTION: From Citywire. Wondering whether you could comment when the OMT purchases may be ready to start. For example, in Portugal and Ireland, are you ready to start buying under the OMT program today? And do you anticipate that you’ll be in the position to buy bonds in Spain before the end of the month so that we can avoid a Moody’s downgrade?
DRAGHI: Well, I mean, the answer is - to what I said before, it’s in the hands of governments. And also - but as far as Portugal and Ireland are concerned, there is a sentence in the - in the press statement that I read that says they - being the outright monetary transactions - they may also be considered for member states currently under macroeconomic adjustment program when they will be regaining bond market access. Thank you.
STAFF: Thank you. The last row, please. The last row, yeah. Yeah, this - you, with the glasses, yeah.
QUESTION: (OFF-MIKE) Bill Watson with Market Watch (ph).
QUESTION: (inaudible) just wondering if the - since you talked about a pretty downbeat economic outlook, do you see any impact from the OMT - an immediate impact in terms of what it would do for credit growth and having an impact on the real economy, in terms of borrowing rates that businesses are paying in the periphery and the contraction in the lending growth that we’ve seen there?
And sort of on a related note, given that situation, was there any talk of not sterilizing purchases, given that that would have an impact on credit?
DRAGHI: The answer to the second question is, no, there wasn’t. On the first - on the first point is - well, the - the objective of this program is to repair monetary policy transmission channels, which today are hampered, and to recreate a single monetary area, which today is fragmented.
So from this, we would see - we should see - we should see some better developments on the credit front, although we should not forget that credit flows are sluggish for, I think, several reasons, where one of which is low demand. Thank you.
STAFF: Thank you. The very last row on the right, yes. One of the last questions.
QUESTION: Yes, my name is Ashley Webster with Fox Business. Mr. Draghi -
DRAGHI: I’m sorry. Where are you?
QUESTION: Right at the back. Hello there. The ECB already has a lot of sovereign bonds on its balance sheet, by some estimates some 33 percent of the euro zone GDP. Once you start throwing in the OMT bonds, are you starting to get concerned that the market will start questioning the integrity of the balance sheet of the ECB?
Secondly, you say that the high yields are based on unfounded fears, but there’s a lot of economic data there that suggests that these yields may, indeed, reflect that poor data.
DRAGHI: I’m sorry. Could you say again -
QUESTION: You say that the high yields on government bonds, in particular Spain and Italy, are based on unfounded fears. It’s almost like a self-fulfilling prophecy. But you have to admit, wouldn’t you, that the economic data suggests that some of these high yields could, in fact, reflect reality.
DRAGHI: First of all, the figure you quoted about our SMP holdings, it’s way off mark. We’re talking about maybe - I mean, we’re talking about 3 percent of total Euro Area GDP, around 3 percent. So not 33 percent, but 3 percent.
On - on the yields, certainly - certainly, what I said at the beginning, you are absolutely right - what I said at the beginning was that we need two legs. We shouldn’t forget how these countries found themselves in a bad equilibrium to begin with, namely because of their wrong policies and policy mistakes.
So this extent, the yields are currently in the market, reflect this fact. They don’t reflect only unfounded fears of a possible reversibility. They also reflect the quality of the outstanding credit of these countries. Thank you.
STAFF: OK, thank you. And the very last question to Mr. (inaudible) please.
DRAGHI: No, I think - I’m sorry. I just have to answer (inaudible)
QUESTION: (OFF-MIKE) Mr. Draghi (inaudible) from the Netherlands. My first question is, I just missed the answer, I think, of Brian Blackstone’s question. Do all national central banks participate in the purchases in the OMT? And my second question would be, if the OMT is operational, could -
QUESTION: If - if the OMT is operational, could it create an incentive for countries to issue short-term debts instead of long-term debts? And what are the kinds of measures to - to address that?
DRAGHI: On the second - I mean, the first question, I’ve answered. And the second question is certainly. There could be such an incentive. We will monitor the situation very carefully. And - but I - at the same time, I - one assumes that countries would like to keep a structure of debt issuance, which is balanced across all maturities.
So there is - there is a danger. There is a risk. It’s not at all clear that actually the debt issuers will move towards this direction, because it has a cost, it has a cost of unbalancing a maturity structure which was probably balanced to begin with, and it’s taken many years to get there.
STAFF: Thank you for your attention.
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