14 July 2014

ECB: Hearing at the Committee on Economic and Monetary Affairs of the European Parliament (ECON)

Mario Draghi shared the European Central Bank’s assessment of the economic outlook for the euro area. Then he explained the package of policy measures ECB adopted at the beginning of June. Finally, he touched upon the challenges in the next five years.

Mr Draghi's Speech highlighted:

Recent monetary policy measures

"The ECB decided on a number of monetary policy measures in early June. These measures are aimed at providing additional monetary policy accommodation by supporting lending to the real economy:

• Specifically, we lowered all key interest rates further. Our main refinancing rate now stands at 0.15%. Accordingly, our deposit facility rate has been cut to a negative level and now stands at -0.10%.
• ECB will conduct targeted longer-term refinancing operations (TLTROs) as of September 2014. In these operations, banks will be entitled to borrow from the Eurosystem, conditional on their lending to the private non-financial sector, with loans to households for house purchase being excluded.
• In addition, ECB is intensifying its work in preparation of possible outright purchases in the market for asset-backed securities (ABSs).
• Furthermore, ECB also decided that at least until the end of 2016, they will continue to fully meet the demand of banks for liquidity in our refinancing operations – of course, against adequate collateral.
• Finally, ECB has suspended the weekly operations to absorb the liquidity injected under the Securities Markets Programme.

Challenges ahead

In the last legislative period, a great deal has been done to restore stability as a key prerequisite for economic dynamism. This has resulted in a return of confidence to the euro area. But high public and private debt, low growth and unacceptably high levels of unemployment are reminding us that the most pressing matter now is to bring the euro area back onto a path of shared prosperity.

To achieve this, the focus in the next five years should lie on thoroughly implementing the reinforced policy framework that was agreed in the last term, and on further increasing the resilience of euro area countries’ economies. For ECB this means assuming a new role in the banking union by supervising the euro area banks as from November. With the comprehensive assessment exercise that ECB is currently conducting, ECB will contribute to putting euro area banks on a healthy footing, so as to enable them to provide financing to the real economy. For euro area Member States, this means undertaking the necessary structural reforms to foster growth, and to avoid any new build-up of macroeconomic imbalances. It also means continuing fiscal consolidation to rebalance public finances in line with the rules underpinning the Stability and Growth Pact. The euro area policy framework was strengthened considerably by the agreement between this House and the Council on the six-pack and the two-pack.

Notwithstanding the significance of the reinforcements put in place for the policy framework, Mr Draghi believes that there is still room for further legislative action where the financial sector is concerned. In addition to a better performing banking sector, an increased role of capital markets could help to support both growth in Europe and the financing of the real economy. To fully reap the benefits of capital market integration, the regulatory environment needs to be harmonised further and, potentially, to be adapted. The joint paper of the ECB and the Bank of England on a better functioning securitisation market in the EU has set out a number of proposals in this regard. Furthermore, a better regulation of financial benchmarks is necessary to restore the confidence and trust of citizens and market participants in the financial system. A swift adoption of the relevant Commission’s proposal is of utmost importance. Discussions will also continue on the shape and structure of our banking sector and the regulation of the shadow banking sector."

MEPs'  questions centred on a return of the prosperity and job creation. They also stressed the need to tackle youth unemployment, through common action in the education and labour market fields. Mr Draghi agreed, noting that better-targeted education, labour market reforms and further harmonisation of financial markets are both necessary and can be achieved at relatively low cost.

MEPs also quizzed Mr Draghi about the slow progress of structural reform and low inflation. "Structural reforms are slow processes but we are seeing improvement" he replied, reiterating that these processes should be accompanied by growth-friendly fiscal consolidation, lower taxes and measures to complete the single market. Low inflation is caused, inter alia, by high unemployment and weak internal demand, but to tackle long periods of low inflation, unconventional measures can and will be deployed, he added.

Winding up the discussion, MEPs asked about future fiscal and monetary policy. Mr Draghi listed repairing the banking system to its full capacity, achieving fiscal and financial stability to retain confidence and avoiding financial bubbles as his priorities.

The next Monetary Dialogue session with Mario Draghi is planned for 22 September.

Full speech

European Parliament statement

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