18 November 2014

Financial Times: Transcript of interview with ECB’s Peter Praet

Peter Praet, the member of the ECB’s top-ranking executive board responsible for economics, spoke to the Financial Times in London on Monday, at a time when officials around the world are increasingly worried that the eurozone faces years of low growth and weak inflation. The following edited transcript features excerpts from the interview.

You mentioned the longer term pessimism, and the feeling that we’re on the verge of seeing a lot more of that. To what degree can the European Central Bank fix that longer term pessimism without the support of governments, or to phrase it another way, what are the limits of what the ECB can do to fix the situation in the eurozone?

We see, indeed, some weakening of longer term expectations, in terms of growth, and it is clear that the central bank cannot solve this problem, of course. The central bank [has done] what is necessary from the central banking point of view, so we have provided monetary policy accommodation, [and] we will go further if needed.

But for longer term growth, there is only one thing: structural reforms. We also said that fiscal policy, when there is some space, it can be used for supporting demand, but fiscal space is relatively limited at the aggregated euro level. It should be used when it’s available, but basically structural reforms. And monetary policy does its part, but it will not solve the problem of long term growth alone, that’s obvious.

There’s a feeling that the central bank is the only game in town, and I think expectations of action have grown somewhat since Mario Draghi said at the beginning of this month the central bank will begin to work on new measures. That’s led some to speculate that we’ll get more action as early as December. How do you view that speculation?

Well, markets like to speculate. We have very clearly said that from the monetary policy point of view, to fix the lending channel we need to have a degree of monetary accommodation, which will imply a sizeable increase of the balance sheet. And we have referred to the balance sheet of 2012 to explain what do we mean with sizeable.

And so the expectation is that, as a consequence of the measures, the balance sheet will evolve to the situation which was likely to 2012. Now, we also said that if these measures will not bring the degree of accommodations that we expect, we will be possibly, if needed, [be] considering additional measures . . . depending on how the economy will evolve. But very clearly we have said that the state of the economy requires a high degree of monetary accommodation.

We have given some quantification to that, and we said that if the measures we have taken do not deliver, we are ready to consider the additional measures if needed.

© Financial Times