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

SPEECH

Hearing at the Committee on Economic and Monetary Affairs of the European Parliament

Introductory Statement by Mario Draghi, President of the ECB, at the ECON committee of the European Parliament

• It is a pleasure to appear before this Committee in this new legislative term and before my term as ECB President comes to an end.
• The legitimacy of the ECBs independence, as enshrined in the EU Treaties, crucially relies on our accountability.
• And the Treaties have conferred this Parliament with a central role in holding the ECB accountable.
• The unemployment rate in the euro area was 7.5% in July this year, the lowest level since July 2008.
• This readiness and determination has been critical in addressing the economic crisis and the downside risks to our objective.
• I will first review the main developments in the euro area economy since my last appearance before this Committee.

The euro area economic outlook

• Since my last hearing before this Committee earlier in the year, euro area growth momentum has slowed markedly, more than we had previously anticipated.
• These factors are increasingly weighing on economic sentiment and, in particular, on the manufacturing sector, which is more trade-oriented and exposed to foreign influences.
• Of course, countries which have a relatively large manufacturing sector are more vulnerable to any turn in the global economic cycle.
• Germany, for example, accounts for 28% of euro area GDP, but for as much as 39% of euro area manufacturing value added.
• Accordingly, Germany is today one of the euro area members most affected by the slowdown.
• While the euro area services sector continues to be resilient, we should not be complacent about its capacity to remain robust to negative spillovers.
• Underlying inflation remains muted, as the weaker economic outlook may imply a delay in the pass-through of wages to prices.

The ECB’s response to the current outlook

• A strong monetary policy response was therefore essential.
• In pursuit of our mandate, we decided on a comprehensive package of measures to ensure that inflation moves towards our aim in a sustained manner.
• This rate provides an anchor for short-term market interest rates, which serve as the reference for many types of loans and financial instruments.
• Lowering the deposit facility rate helps to further improve the borrowing conditions of households and businesses.
• Negative rates also encourage banks to lend to the real economy instead of holding onto liquidity, thus supporting the portfolio rebalancing channel of the asset purchase programme (APP).
• The reference to the inflation outlook being consistently reflected in underlying inflation dynamics means that the path of realised inflation should underpin our inflation outlook.
• Overall, in view of the outlook and uncertainties we are facing, monetary policy needs to remain highly accommodative for a prolonged period of time.
• We continue to stand ready to adjust all of our instruments if warranted by the inflation outlook.

Looking back, looking forwards: achievements and future direction of Economic and Monetary Union