14 December 2012

ECB/Draghi: "The year when the long-term vision for the euro and the euro area was re-launched"

You announced the [OMT] programme; there was immediately a favourable reaction in the markets, remarkable. Many people assumed then that the governments would apply, but they haven't. What conclusions did you see?

The purpose of the OMT is to remove the tail risks. It's up to the governments to decide upon a programme. We never took a stance which was proactive in the sense of encouraging governments or discouraging governments to apply. Let’s not forget that the ESM is tax-payers’ money, the decision over which should be taken by governments and by national parliaments. And the same is true for the potential applicants’ reforms and budget consolidation. The role of the ECB, in that stage, should be on the back stage, not front line. It’s up to the governments to decide.

While it is true that current account deficits are shrinking and governments are doing, in many ways, courageous things, they're passing reforms, there's still the question of economic growth. What is your prognosis for the next 12 months?

Last week we published our new staff projections, showing the beginning of a slow recovery in the second part of next year. We have a serious situation in front of us. At the same time, there are some encouraging signs. The spreads are tighter than they were four months ago. Liquidity conditions are better, banks and corporates are funding themselves. Bond issuance has restarted. And for the public sector, the distressed countries have basically completed all their sovereign funding plans. Furthermore we think that our very accommodative monetary policy stance will find its way into the economy in the coming months. That's why we're saying that we may see a recovery in the second part of the year. Also, at some point, one will see the benefits of fiscal consolidation and structural reforms. So far we've only seen the contractionary effect of the fiscal consolidation. We haven't seen yet the positive effects of structural reforms because, obviously, they take effect with a certain lag. And third, we will be seeing a more buoyant world growth, which will help sustain exports of the euro area.

A couple of other questions, one is the banking union because, in addition to all the questions that we've just discussed, these huge challenges for the eurozone and for the ECB, now you're going to have to take on the extra responsibility of supervision of at the least the large banks in the eurozone. Is the institution ready for this? Are you ready for this?

We will be ready. After the Council Regulation will enter into force, it'd take about a year to set up organisation of the SSM. There have been many discussions on how fast we should move and how broad should be the scope. One has to remember that we are a passive actor. We are in the hands of our legislators. It's clear that we want to move in a timely fashion, but it's more important to move well. And we intend to take the time that's needed for that.

Would one of the things about doing it right be that you need there to be some sort of European-wide bank resolution scheme in place before you take over the supervision, otherwise you're in a situation where you're nominally in charge of supervising all these banks. If one of them needs to be wound up, for whatever reason, you're completely at the mercy of the local supervisor and the local arrangements. You don't actually have the powers to do anything.

A European Resolution Authority is an important complement to the SSM, and it will likely be in place by the time the SSM takes up its responsibilities. But even in its absence, the single supervisor’s assessment of the possible non-viability of a bank would be such a strong statement that it would likely trigger the national government’s policy response.

I’d like to give you this quote of Professor Zygmunt Bauman, a Polish sociologist who has become best known for his analyses of postmodernity and consumerism. It has to do with the fact that you don't lose sovereignty when you share it, but you actually regain it. Countries with high debt and deficits should understand they have lost sovereignty a long time ago over their economic policies in a globalised world. Working together in a stability-orientated union actually means regaining sovereignty at a higher level.

Full interview

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