Dogtown
Forever Ultras Ghetto
Question: Mr Draghi, at the European Banking Congress, you said that you’ll bring back inflation without delay. Today, you presented a significantly downwardly revised inflation forecast and underlined now repeatedly that there’s a risk of further revision. Now, I know that you have announced other measures, and that they still have to take their full effect, but you announced those at a time when the outlook was still stronger than today, so I’m wondering, what is causing the delay? Why no decision today?
My second question is, Vice President Constâncio said last week twice that should you decide to go down the route and buy government bonds, that this would be a pure monetary policy tool and would happen according to the capital key. And in this context, I wonder why the ECB would choose a different route from other central banks that had decided to focus on the safest available assets only in their QE programmes?
Draghi: Your first question is very, very reasonable, I would say, and there are two answers to this first question. One in the sense that I have already given it: namely that the changes that have taken place of recent in the price of oil are so meaningful. Just think that between, if I’m not mistaken, June of this year and today, the price of oil decreased by 30% in euro terms, so that they need careful assessment. They need careful assessment in the ways that I have described before. We have to assess the direct effect, the indirect effect, and whether there are going to be second-round effects. Some of these effects are positive; others are not positive. That’s one reason, I think, to just think more.
The second reason, however, is that between June and September, we have announced many meaningful decisions that, as we said several times, are having a sizeable impact on our balance sheet but, more meaningfully, have already produced a substantial easing of financial conditions, both on the credit side, and they haven’t yet fully developed their action, so we need to see more about what’s the impact of this. At the same time, we have to be aware that those measures had been calibrated with a growth and inflation outlook which was more favourable than we have today. So it’s both time to look at what effect these measures are having and will have, and also time to be prepared to further action if needed. I think that’s the basic strategic stance that is expressed by today’s meeting.
On the second point, the form of QE that the Vice President has presented or illustrated is one of the several that we’ve discussed today. Do you want to comment?
Constâncio: In the first place, I didn’t describe any decision that had been taken, of course. I just expressed my view, as is normal in our individual speeches. Also, another dimension of your question was that other countries adopted a policy of buying the safest asset. Well, they just had one, because they bought their own sovereign, and then that was not the same type of problem that you’re alluding to in a context of a monetary union that has many states and different types of debts. Also, you must also recall that we have a very clear policy on what regards what are eligible sovereign bonds for our collateral, and that provides a criteria about the safety to our balance sheet, but, as the President just said, these are all questions open and still for discussion. We have not taken any decision, and I didn’t allude to any decision that has been taken.
Question: Mr President. There’s been a lot of talk among analysts about whether or not, if you were to do QE, you could do it in the way that the BOJ did, in the sense that the decision was five to four in favour, or would you need more of a consensus? Would you need what some analysts have referred to as a super majority? So it would be good to hear your thoughts on that.
For the second question, we saw quite a lot less last week from the Commission on member states’ plans for structural reform and fiscal adjustment, notably for France. Do you think what was announced last week in terms of structural reform is sufficient or, as you suggested in recent speeches, would you like to see more centralisation and some sort of permanent framework in place for dealing with this?
Draghi: Well, I would like to answer first the second question. I think the final decision about structural reform and fiscal consolidation of France and Italy is in the hands of the Commission. The view that I have expressed several times, as far as structural reforms are concerned, is that there is a lot to gain in extending the sort of, I would say, framework that at present we have in the budgetary policies to areas like structural reforms, to have a common decision; we are so intertwined already that structural reforms are bound to have spill-overs on other countries, exactly in the same way, in the same sense, as budgetary reforms. That is the basis for having a common interest, in having a common decision-making process, and in this sense, I have argued several times that it’s not a matter of losing national sovereignty, which is the fear that many people have. It’s more a sharing national sovereignty at a supranational level, and it’s more and more true that the area of structural reforms is now of dominant importance in producing future growth, and conversely, the lack of it will continue to cause weak growth, the weak growth that we are seeing today.
On QE, you asked, whether we need to have unanimity to proceed on QE, or can we have a majority? I think, we don’t need to have unanimity. It’s an important monetary policy measure. It can be designed, I believe, it can be designed to have a consensus. I’m still confident, but we have to remember that we have a mandate, and as I said before, we don’t tolerate deviations from our mandate that would cause ultimately a tightening, an unwanted tightening of our monetary policy.
My second question is, Vice President Constâncio said last week twice that should you decide to go down the route and buy government bonds, that this would be a pure monetary policy tool and would happen according to the capital key. And in this context, I wonder why the ECB would choose a different route from other central banks that had decided to focus on the safest available assets only in their QE programmes?
Draghi: Your first question is very, very reasonable, I would say, and there are two answers to this first question. One in the sense that I have already given it: namely that the changes that have taken place of recent in the price of oil are so meaningful. Just think that between, if I’m not mistaken, June of this year and today, the price of oil decreased by 30% in euro terms, so that they need careful assessment. They need careful assessment in the ways that I have described before. We have to assess the direct effect, the indirect effect, and whether there are going to be second-round effects. Some of these effects are positive; others are not positive. That’s one reason, I think, to just think more.
The second reason, however, is that between June and September, we have announced many meaningful decisions that, as we said several times, are having a sizeable impact on our balance sheet but, more meaningfully, have already produced a substantial easing of financial conditions, both on the credit side, and they haven’t yet fully developed their action, so we need to see more about what’s the impact of this. At the same time, we have to be aware that those measures had been calibrated with a growth and inflation outlook which was more favourable than we have today. So it’s both time to look at what effect these measures are having and will have, and also time to be prepared to further action if needed. I think that’s the basic strategic stance that is expressed by today’s meeting.
On the second point, the form of QE that the Vice President has presented or illustrated is one of the several that we’ve discussed today. Do you want to comment?
Constâncio: In the first place, I didn’t describe any decision that had been taken, of course. I just expressed my view, as is normal in our individual speeches. Also, another dimension of your question was that other countries adopted a policy of buying the safest asset. Well, they just had one, because they bought their own sovereign, and then that was not the same type of problem that you’re alluding to in a context of a monetary union that has many states and different types of debts. Also, you must also recall that we have a very clear policy on what regards what are eligible sovereign bonds for our collateral, and that provides a criteria about the safety to our balance sheet, but, as the President just said, these are all questions open and still for discussion. We have not taken any decision, and I didn’t allude to any decision that has been taken.
Question: Mr President. There’s been a lot of talk among analysts about whether or not, if you were to do QE, you could do it in the way that the BOJ did, in the sense that the decision was five to four in favour, or would you need more of a consensus? Would you need what some analysts have referred to as a super majority? So it would be good to hear your thoughts on that.
For the second question, we saw quite a lot less last week from the Commission on member states’ plans for structural reform and fiscal adjustment, notably for France. Do you think what was announced last week in terms of structural reform is sufficient or, as you suggested in recent speeches, would you like to see more centralisation and some sort of permanent framework in place for dealing with this?
Draghi: Well, I would like to answer first the second question. I think the final decision about structural reform and fiscal consolidation of France and Italy is in the hands of the Commission. The view that I have expressed several times, as far as structural reforms are concerned, is that there is a lot to gain in extending the sort of, I would say, framework that at present we have in the budgetary policies to areas like structural reforms, to have a common decision; we are so intertwined already that structural reforms are bound to have spill-overs on other countries, exactly in the same way, in the same sense, as budgetary reforms. That is the basis for having a common interest, in having a common decision-making process, and in this sense, I have argued several times that it’s not a matter of losing national sovereignty, which is the fear that many people have. It’s more a sharing national sovereignty at a supranational level, and it’s more and more true that the area of structural reforms is now of dominant importance in producing future growth, and conversely, the lack of it will continue to cause weak growth, the weak growth that we are seeing today.
On QE, you asked, whether we need to have unanimity to proceed on QE, or can we have a majority? I think, we don’t need to have unanimity. It’s an important monetary policy measure. It can be designed, I believe, it can be designed to have a consensus. I’m still confident, but we have to remember that we have a mandate, and as I said before, we don’t tolerate deviations from our mandate that would cause ultimately a tightening, an unwanted tightening of our monetary policy.
