A few speeches from numerous European Central Bankers about ECB monetary policy

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Mario Draghi: Hearing at the Committee on Economic and Monetary Affairs

It is easy to underestimate the strength of this commitment. But that would overlook the progress we have made. With the single currency, we have forged bonds that survived the worst economic crisis since the Second World War. This was in fact the original raison d'être of the European project: keeping us united in difficult times, when it is all too tempting to turn against our neighbours or seek national solutions.

But the objective of Economic and Monetary Union should be to strive to achieve "economic and social progress" as was the intention of the signatories to the Maastricht Treaty. And for this, we need sustained growth and job creation.

The resilient recovery we have witnessed in recent times has been a welcome step towards this objective. Over the last two years GDP per capita has increased by 3% in the euro area, which compares well with other major advanced economies. Economic sentiment is at its highest level in five years. Unemployment has fallen to 9.6%, its lowest level since May 2009. And the ratio of public debt to GDP is declining for the second consecutive year.

These are steps in the right direction. But these are just first steps. We need to continue on this path so that unemployment decreases further and more Europeans can benefit from the recovery.

Addressing financial risks in the euro area

One of those side effects concerns the impact on banks' profitability. Let us first look at the data. Following a slowdown in profit generation in the first quarter of 2016, the profitability of euro area banks stabilised in the second quarter. According to preliminary data, developments for the third quarter seem to be in line with those observed for the second quarter.

A second issue is the potential risk of credit or asset bubbles. Currently, we do not see compelling evidence at the euro area level of stretched asset valuations. Both corporate bond spreads and equity prices appear to be broadly in line with fundamentals.

Similarly, real estate price growth remains moderate in the area as a whole, although significant cross-country heterogeneity is observable. This assessment is corroborated by the fact that credit growth is still modest, which suggests that asset price developments are not accompanied by increasing leverage.

Nevertheless, the longer the accommodative measures need to be kept in place, the greater the risks of unwarranted side effects on the financial system become. For instance, asset prices may increase to levels that are not in line with fundamentals because investors might be tempted to take on more risk during times of low yields.

Such developments are best addressed by enacting appropriate macro and microprudential policies.

The euro area's resilience in 2016 despite a range of negative shocks shows that we are on the right track. It also suggests that reforms at national and European level are paying off in terms of economic growth.

Introductory statement by Mr Mario Draghi, President of the European Central Bank, before the Hearing at the Committee on Economic and Monetary Affairs of the European Parliament, Brussels, 6 February 2017.

 

Andreas Dombret interview with Handelsblatt on Feb. 23rd, 2017

Banks need to set capital aside to prepare for a rise in interest rates in the Eurozone, chair of German Bundesbank’s (Buba) regulatory body, Andreas Dombret (pictured), told Handelsblatt on Thursday.Dombret noted that increases in inflation in both Germany and the euro area are pointing towards a potential rate hike from the European Central Bank. He added banks need to prepare capital buffers to address the potential rate rise and pointed out: “The longer the low interest rate phase goes on, the greater the risks in the event that interest rates increase.”However, the Buba executive stated that, in the long term, higher interest rates are good for banks and they will help the sector stabilize.

Bundesbank Chief Jens Weidmann on Feb. 23rd, 2017

  • Eurozone's policymakers need to see whether they should keep communicating they are ready to increase asset purchases, Bundesbank chief Jens 

  • Weidmann said on Thursday as Germany's central monetary authority presented its annual results. The appropriate scope for easing is seen differently in the European Central Bank, according to the prominent member of its rate-setting panel, who revealed he didn't agree with the decision to extend the duration of the program at the meeting in December. Weidmann explained he believes expansive policy fuels risk. The monetary union faces no danger of price swings in either direction and the economic recovery is stabilizing, according to the central banker's remarks, but he did point to what he considers relatively strong uncertainty. He warned protectionist moves by the administration of United States President Donald Trump could create a domino effect, possibly shaking the "pillars of prosperity" that are upheld by international trade. Bundesbank revealed it booked €1.8 billion in provisions related to interest-rate risks for the first time, which drove down profits for the government. Net income came in at €399 million or 87% lower. The indication of caution also points to the need to shield the system before easing measures are scaled back and bigger interest rates start to impact earnings.

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  • Peter Praet, the European Central Bank's chief economist
  • The departure of the United Kingdom from the European Union shows integration can change its course, said Peter Praet, the European Central Bank's chief economist. "A more widespread reversal of European economic integration would durably jeopardize economic prosperity," he said on Thursday at a conference about Brexit's impact on financial services in London, and claimed there will be widespread damage from the current process. Britain faces difficulties in trade with the rest of the bloc as barriers are seen building up, the central banker stressed, adding consequences will need to be mitigated on the other side as well. Praet attributed the developments to the "culmination of a broader anti-establishment and anti-globalization narrative" in advanced economies as, how he put it, uncertainty strengthened after the financial crisis. He also played down the role of monetary policy, reiterating the need for structural reforms "to build resilience to country-specific shocks and ensure the full diffusion of innovation" for balanced benefits across population groups. Asked about the measures in the pipeline of the administration of United States President Donald Trump, the member of the ECB's Executive Board said there are some "worrisome" indications, but that particular actions remain to be seen. "Despite the resilient recovery in the euro area, and strong indicators of confidence across all sectors, measures of political and policy uncertainty have been rising recently, although asset markets are not significantly pricing in tail risks. The recent bouts of uncertainty are a source of concern, and represent a downside risk to the economic outlook," Praet stated in prepared remarks.TeleTrader Newsroom / IT

     

     


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