Problem number one, and maybe number two for European banks is the high level of non-performing loans. Do you think that the creation of a bad bank or other mechanisms to split the non-performing loans is the right solution, and if not what would you suggest? The second question: you welcomed the European Commission’s communication [on IDRs]. But yesterday’s communication was very tough, very strict with Italy, but not so with France or Germany. Do you really think that more sacrifices can improve the recovery or growth?
On the bad bank, I don’t want to enter into a discussion about the specific instruments. But certainly what countries should do, what supervisors should do, and what we will certainly do with the comprehensive assessment will be to cope with non-performing loans and other factors or weaknesses in the banks’ balance sheets squarely. The worst thing one can do is to pretend the problems don’t exist. If anything, evidence from Japan from the 1990s and 2000s is that zombie banks don’t lend. So the idea that people are afraid of the AQR because they think that banks will then deleverage and will not lend – well, they don’t lend anyway if they are zombie banks. And so the only possible path is to cure and proceed and carry out surgery if needed. That is the purpose of the AQR; that is the purpose of the comprehensive assessment. But I also think fair credit should be given to national supervisors who, in view of the AQR, are already taking prompt, corrective action with respect to their own banking systems by increasing provisions, demanding capital increases so that banks can be repaired. Whether the bad bank is the right instrument or not really depends on the specific circumstances. The important thing, as I said before, is to restore trust in the European banks’ balance sheets, and that is the ultimate objective of the exercise and that is the necessary and sufficient condition for the private sector to return to invest in the European banking industry.
As for the second question, while we certainly welcome the European Commission’s communication, let me read what we said in the introductory statement. We said “euro area countries should not unravel past consolidation efforts”. It would be a disaster. If you think, as you said, that there are so many sacrifices and so much pain because of the efforts that have been undertaken now, would it make any sense to go back and squander all the political and human capital that has been invested in these efforts? The introductory statement does say not to unravel past consolidation efforts and that high government ratios should be put on a downward path over the medium term. Fiscal strategies should be in line with the Stability and Growth Pact but should also be growth-friendly, so it is time to think or re-think about the composition of the budget consolidation efforts. I will not dwell on this because you have heard me saying too many times, really, what I mean by re-thinking the composition. And then it says “national authorities should also continue with the decisive implementation of structural reforms in all euro area countries". That is essential. There are several markets that, without structural reforms, will not function again. One of them is the labour market, where structural unemployment is high. One copes with structural unemployment through structural reforms.
There are opinions in the market that, for now, the OMT programme is on hold because the Bundesbank might not participate. What is your opinion on that? I would also like to know your opinion about the IMF calling on the ECB for more stimulus in recent articles. How do you feel about that?
Let me say that the OMT programme is ready, it is there and it is ready to be activated if and when needed. In this sense, we welcome the referral of the OMT case to the European Court of Justice. OMT, in our view, falls within our mandate of pursuing price stability over the medium term.
The IMF statement asking for more stimulus is one of the many voices asking us to move in one direction, just as many others are asking us to move in another direction or to do nothing. So I think the analysis that we are carrying out at the present time, at least with respect to this monetary policy meeting, diverges from what the IMF is saying. One should also ask the question of what kind of stimulus here because, as I have said over and over again, many of the problems that we face today are structural. Fragmentation is a structural problem and one way to cope with it is precisely the comprehensive assessment and asset quality review that we will be carrying out.
However, let me just say one last thing with respect to that. The ECB – Vítor Constâncio and Danièle Nouy – are working on several issues: undertaking the asset quality review and later the stress test, as well as working on building up a totally new institution, the SSM, which we foresee some 1,000 people working for. And then the question is what about the SRM? Will the SSM start to take charge at the same time as the SRM will take charge? This is an important point because to have a single resolution mechanism working together jointly with the supervisory mechanism would align responsibilities between the one European supervisor and the one resolution authority. So there would be no misalignment of responsibilities. By contrast, if we do not have one SRM, the responsibilities for resolution will remain national, and so we will have a misalignment of responsibilities. We are following with great attention the current discussion between the Council and the European Parliament. The ECB view is that the mutualisation process should be sped up and the governance of this new institution should be effective so that the new institution, the resolution authority, could actually take the swift decisions that are in its very nature because, as we all know, to resolve a bank is a decision that is often taken in hours. So the governance of this new institution should be such that it could decide in a matter of hours. And the third point is that, of course, in order to have this gradual but not too slow mutualisation, one has to have a backstop. And on the backstop, we have always been very open: It could be a credit line from the ESM or it could be borrowing from the markets with joint government guarantees.
Finally, and we have insisted on this a lot, including with you, I think, we have to have a strict separation between the supervisor’s assessment and the resolution assessment. I just wanted to make this point because these are examples of structural reforms that would address a structural problem, namely fragmentation.
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