BackECB’s Draghi says ready to use more unconventional tools
ECB President Mario Draghi says he expects more demand from banks for its new ultra-long loan programme known as TLTROs
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Frankfurt: The European Central Bank (ECB) stands ready to use additional unconventional tools and tweak its existing efforts to spur inflation and growth in the euro zone if needed, ECB President Mario Draghi said on Monday.
Speaking to the economic and monetary affairs committee of the European parliament, Draghi also said he expects more demand from banks for its new ultra-long loan programme, known as TLTROs, when the funding is offered again in December.
Lower than expected take-up of the initial tranche of loans last week has fuelled expectations the ECB may eventually take more radical stimulus measures, such as buying large amounts of sovereign debt in a policy known as quantitative easing (QE).
Such a step would face strong resistance in Germany.
Draghi said the euro zone central bank’s Governing Council “remains fully determined to counter risks to the medium-term outlook for inflation".
“Therefore, we stand ready to use additional unconventional instruments within our mandate, and alter the size and/or the composition of our unconventional interventions should it become necessary to further address risks of a too prolonged period of low inflation," Draghi said.
The ECB would closely monitor risks to inflation, he added.
He said the €82.6 billion taken by 255 banks last Thursday was “within the range of take-up values we had expected" and noted that banks will have another opportunity to use up their TLTRO initial allowance in December.
“By design, the September and December operations should be assessed in combination," Draghi said, adding that news of the TLTRO programme had already had a “positive impact on financial market sentiment".
A Reuters poll on Monday predicted that the second tranche of the TLTROs in December will attract better demand than last week’s sale but is still likely to leave a third of the total 400 billion euros on offer untapped.
As the euro zone economy ground to a halt in the second quarter and markets’ belief in the ECB’s ability to keep prices stable wilted, Draghi shifted gear and called last month for a new policy mix of government reforms and fiscal stimulus to accompany the ECB’s efforts.
He repeated that plea to the parliament members.
“As I have indicated now at several occasions, no monetary—and also no fiscal—stimulus can ever have a meaningful effect without such structural reforms," he said.
He said the ECB had “done a lot over the past three years". Thanks to the ECB 2012 promise to buy potentially unlimited amounts of the sovereign bonds of member states, euro zone governments’ funding costs have fallen to record lows.
But Draghi questioned whether governments had made use of the opportunity to reform. “If you look at these amazing savings that these governments have actually had because of our monetary policy decisions that the ECB has taken with price stability objective in mind only. Where have these savings gone? Where have they gone?"
He said the crisis would only be over once confidence returned and companies were willing to take risks again, invest and create jobs, which depends most on the implementation of structural reforms and improvements in the competitiveness.
In his speech in Jackson Hole, Wyoming, in August, Draghi said it would be “helpful for the overall stance of policy" if fiscal measures could play a greater role, “and I believe there is scope for this".
But that plea fell on deaf ears in Germany, where finance minister Wolfgang Schaeuble rebuffed calls also from struggling euro zone countries to boost spending to strengthen domestic demand, saying structural reforms were key to return to growth.
France’s Manuel Valls used his first visit to Berlin as prime minister on Monday to try to convince Germany his government was serious about making its economy more competitive. Reuters
John O’Donnell contributed to this story.
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