Draghi spoke first in his capacity as chief of the European Systemic Risk Board (ESRB), which is designed to give early warnings and one of Europe’s flagship responses to the financial crisis, before speaking as ECB chief.
ECONOMIC OUTLOOK
“Overall, euro area economic activity should stabilise and recover over the course of the year, although at a subdued pace.”
“The risks surrounding the economic outlook for the euro area continue to be on the downside.”
ECB POLICY
“Following its July meeting the governing council stressed that the monetary policy stance is geared towards maintaining the degree of monetary accommodation warranted by the outlook for price stability and promoting stable market conditions.”
“It reiterated that its monetary policy stance will remain accommodative for as long as needed. Furthermore, the governing council sharpened its communication by announcing that it expects the key ECB interest rates to remain at present or lower levels for an extended period of time.”
LOW RATES
“It is difficult to disagree with the BIS (Bank for International Settlements) assessment of risks of too low interest rates for a long period of time. They involve both micro risks and macro risks. Micro risks would be visible by banks renewing lending to customers that are not really working simply because it is inexpensive. Of course, when interest rates go up, this would all come to light and we would have instability coming from there. We could also have investors in a desperate search for yield and that would increase risks.”
“There are also macro risks, for example capital flows.”
“The situation as far as price stability is concerned and the economic situation in large parts of the world is concerned, higher interest rates would not be warranted at this point in time. In the last press conference, as you know, we said that interest rates will be staying at the present level or lower in the euro area. Of course, higher interest rates would reduce risk on the one hand. On the other hand, higher interest rates in a weak economic situation would destabilise a country making the life of your counterparties even more difficult. In the present situation, the way to address potential risks stemming from low rates is to focus on macroprudential instruments.”
EURO ZONE ECONOMY
“The euro area still faces considerable challenges. The economy is still weak. Financial fragmentation remains. This challenges the very concept of the Single Market.”
“Euro area economic activity should stabilise and recover over the course of the year, although at a subdued pace.”
“The risks surrounding the economic outlook for the euro area continue to be on the downside.”
PORTUGAL
“Portugal is just one of the examples where the economic situation remains stressed and social distress is indeed very high.
“What the ECB has done is basically say, ‘look, don’t unravel the progress that these countries and Portugal especially has made on fiscal consolidation. But make this fiscal consolidation growth friendly. Lower your taxes, lower your current expenditures, make structural reforms.’
“We know that fiscal consolidation was, and still is, unavoidable.”
