15 June 2015

BIS: Benoît Cœuré interview in La Croix

Interview with Mr Benoît Cœuré, Member of the Executive Board of the European Central Bank, in La Croix, conducted by Ms Marie Dancer and published on 10 June 2015.

1. The economy

Are we seeing a real recovery in the euro area?

Yes, we are now seeing a recovery. Growth is returning in the euro area, including the countries that suffered the most during the crisis (with the exception of Greece). However, this recovery needs to be consolidated, as it is only just beginning and remains fragile. First of all, it is being driven by a number of temporary factors: cheap energy prices, combined with the low levels of both interest rates and the euro's exchange rate, which are a result of our monetary policy. We will not be able to rely on these factors forever.

The second area of fragility - of concern, even - is the weakness of investment. Until investment has clearly picked up again, we will not be able to say that the recovery is robust. The ECB has contributed to that pick-up in investment by reducing the cost of both short and long-term financing. (The average maturity of the assets that we have purchased is eight years.) However, a sustainable pick-up in investment requires the involvement of other players. It means having a business climate that encourages firms to invest and a favourable regulatory and social environment. It falls to governments and social partners to determine the rules of the game. Banks also need to lend. Lending is picking up in the euro area, but mainly for large firms. Lending to small and medium-sized enterprises is not growing strongly enough. The new banking regulations are intended to discourage speculation; they are not a reason not to finance the economy.

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2. Financial markets, liquidity and bubbles

Is the excess liquidity that has been injected into the markets - notably by the ECB - not paving the way for a bubble and the next crisis? Are the markets not high on liquidity?

The ECB has pursued its policy of monetary easing - rock-bottom interest rates and purchases of securities in the markets - in order to return to growth and inflation below, but close to, 2% in the euro area, in line with our mandate. We know that this policy has some side effects.

It is true that there is a lot of liquidity in circulation. We are not currently concerned about financial bubbles in the euro area. Financial assets are not over-valued at present; I am thinking of stock markets in particular. But we remain very vigilant in this regard, particularly since rates will remain low for an extended period of time.

[...]

You are not worried that an abrupt reversal in the markets could quickly break through all of these firewalls?

Admittedly, there has been some short-term volatility in the markets [ed.: yo-yoing rates]. That is inevitable, not so much because of the monetary easing pursued by the ECB, but because of uncertainties in the global economy, which went through a soft patch in the first quarter of this year. The financial markets need to adapt to the fact that we now have very different monetary policies in the United States and the euro area and a new regulatory environment. That is causing a lot of uncertainty and will entail a period of adjustment.

The ECB does not intend to counter that volatility in the short term, which would effectively give market participants a free insurance policy. However, we will not allow excessive fluctuations in financial markets to threaten the achievement of our objective, which is to ensure price stability in the medium term. The best contribution that we can make is to be clear about the future direction of monetary policy. For this reason, we have been clear about the fact that purchases of securities will continue until September 2016 at least, and longer if necessary.

[...]

Does the ECB's quantitative easing signal a return to currency wars?

There are no currency wars at present. The depreciation of the euro is the result of differences between the euro area and the United States in terms of their respective positions in the economic cycle and, accordingly, their monetary policies. Our partners recognise that our monetary policy decisions are appropriate given the situation in the euro area. This is not a question of seeking to influence the euro's exchange rate, in respect of which the ECB has no specific objectives.

3. Greece

Could the ECB find itself on the front line when it comes to saving Greece if the negotiations fail? Could it end up having to print money? Will this involve it operating outside of the European treaties?

We are already on the front line and we are fully playing our part as the central bank responsible for all 19 countries that share the single currency, including Greece. The liquidity provided to Greek banks by the Eurosystem (the ECB and the Bank of Greece) has increased from €45 billion in December 2014 to €119 billion today, which gives you an idea of the extent of the support provided by the ECB to Greek firms and households.

However, our ability to act is governed by rules stemming from the treaties, which have been approved by European citizens: on the one hand, we can only lend to Greek banks if they are solvent and provide collateral, and on the other hand, we are not allowed to lend to the Greek government (or any other government). It is for the governments of the euro area, which together form the Eurogroup, to decide whether they wish to lend to the Greek government and under what conditions, not for the ECB.

[...] I refuse to discuss a Greek exit from the euro area because we are not working within that framework. We are financing the Greek economy and we are working alongside the IMF and the European Commission to secure an agreement with Athens, with the aim of keeping Greece in the euro area.

Should Greece's debt be restructured?

This question is not taboo, as the Greek debt has already been restructured for private banks. As for the public creditors, they have already agreed to significant adjustments regarding the extension of repayment periods and rate cuts, with the result that the Greek debt burden is now significantly lower than that of Italy or Spain as a percentage of national income.

Should more be done? The answer will depend on the final terms of the agreement between the creditors and the Greek authorities. This is the yardstick against which we will reassess the sustainability of the debt. The money that is at stake belongs to taxpayers in euro area countries, so it is for their governments, not the ECB, to make decisions in this regard.

Could the ECB make some kind of gesture?

The ECB's claims on Greece stem not from loans that have been granted to the country, but from bonds purchased in the capital markets at the height of the crisis to improve the transmission of our monetary policy decisions. We are not allowed to restructure them, as the treaties prohibit us from providing financial assistance to states.

[...]

Would a Greek exit from the euro area trigger the demise of the single currency?

The ECB, I reiterate, wants Greece to remain in the euro area. If, one day, a country were to leave the euro area, that would be a serious warning sign for Europe, because the question would inevitably arise as to whether such a scenario could be repeated. But the answer to this question is widely known - it seems to me that there is a broad consensus concerning the conditions that enable each country to benefit from the advantages of the euro on a lasting basis. These conditions include accountability before, and solidarity towards, peers. These common values should be reflected in national and European institutions. Incidentally, the countries that have committed themselves to these values have successfully overcome the crisis (notably Spain and Ireland). So I am not at all worried about the cohesion of the euro area. But if a country were to decide to depart from this consensus, that would undoubtedly oblige the other countries to unequivocally consolidate their commitment to the values I just mentioned by accelerating the process of strengthening the euro area. This would entail the acceleration of a process of institutional reflection which is currently a long-term endeavour.

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4. The institutions

Is the euro area today strong enough to face up to a new crisis?

Yes, I am certain it is. Thorough reforms have been implemented since 2010 to reinforce the responsibilities of member countries (notably in fiscal matters), as well as solidarity between them (with the creation of the European Stability Mechanism), while the banking union strengthens banking supervision and has broken the financial link between banks and states.

But we are still only halfway there. We have not yet reached the point where we can be completely at ease about the strength of the euro area in the long term. [...]

This could be achieved, for example, by giving the euro area a specific budgetary capacity, the use of which would be subject to democratic oversight. The presidents of the European Council, the European Commission, the Eurogroup and the ECB will soon publish proposals on these issues.

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Full interview

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