17 April 2014

ECB/Cœuré: Interview with Le Monde

Is the current level of the euro too high?

There is a particular fascination with the exchange rate in France that is not shared by other euro area countries. No doubt this has something to do with the fact that France is one of the only countries in the euro area whose external accounts are in the red. However, the euro area as a whole is running a current account surplus: the solution for France, therefore, is to improve its competitiveness, which is indeed what the government plans to do. This is not to say that the ECB is not concerned about the exchange rate; it is rather that the ECB does not have an exchange rate objective. 

There is no doubt that the appreciation of the euro since the summer of 2012 has contributed to the current low level of inflation. All other things being equal, the stronger the euro, the more an accommodative monetary policy is justified.

What could the ECB do to influence the level of the euro?

We have several instruments at our disposal in the event that it becomes necessary to loosen our monetary policy stance. We still have some margin to reduce key interest rates, including by pushing the deposit rate into negative territory. Finally, at its last meeting, the Governing Council declared itself unanimously ready to look into non-standard measures, including the possibility of quantitative easing (QE) if circumstances dictated.

Would it be advantageous for the euro area to develop market financing of the economy, like in the US?

Yes, even if the idea is not to copy the United States. European growth is based almost exclusively on financing of households and firms by banks. For a long time that worked well, European banks did their job. But the 2007 global crisis and then the euro area crisis revealed that depending so exclusively on one sole method of financing constitutes a weakness.

Developing market financing via ABS (secured corporate debt) or, for example, bond issuance by medium-sized enterprises would make the financial system more balanced and more resistant to shocks. This is essential as, by definition, we do not know where the next crisis will hit.

With this in mind, the ECB and the BoE are suggesting to revise the European rules on ABS. How?

The European regulators are discussing this because the euro area needs these instruments. It’s a medium-term project whose purpose must not in any circumstances be to recreate the securities market as it existed before the crisis. The "new ABS" must be different from the previous ones. If they are more transparent and simpler then they will be less risky – the rules could take this lower degree of risk into account, in particular for the capital requirements applying to banks and insurance companies. It is not a question of going back over the need to raise the moral standards of finance, which has been advocated since 2008, but to promote instruments that finance the economy.

The ECB has begun assessing banks' balance sheets before the start of Banking Union. Could the discovery of weaknesses in large institutions trigger another crisis?

At this stage it is too early to say what we will find. But one thing is certain: for confidence in the banking system to be restored, each time a bank has insufficient capital reserves, the gap will need to be filled quickly. And this following a well-defined procedure: first, having recourse to the bank’s internal resources, then markets and finally – and only in the event that this is not enough – to public authorities at national or European level in compliance with State aid rules. Governments in the euro area have for that matter undertaken to follow this procedure if the situation requires it.

With the Banking Union, the ECB will be responsible for banking supervision in addition to monetary policy. Is that not too many powers in the hands of one sole institution?

It is true that the ECB will have more powers. But, as in any democratic system, it will have strong counterparts. In banking supervision just as in monetary policy, the ECB will be accountable for its decisions in accordance with the procedures which have been agreed with the European Parliament.

Full interview

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