The interview focused on Greece, with Draghi saying that the most important elements in the coming months will be strong ownership of the programme and debt relief. The QE programme and inflation were also on the table.
Interview with Mario Draghi, President of the ECB, conducted by Alexis Papahelas, published on
How soon can the capital controls be lifted in your view?
The decision to impose capital controls, as well as the one to lift them, lies with the government of Greece. [...]
As you know, there has been a lot of heated debate in Greece because, at some point, the government accused the ECB of imposing the capital controls as some sort of punishment for the policies it was implementing. What would be your response to that?
[...] There was no special treatment in favour of ‒ or discrimination against ‒ Greece. We have always made it clear that emergency liquidity assistance (ELA) could be neither unlimited nor unconditional. It could only be given to solvent banks and against sufficient collateral. As the quality of the collateral posted against ELA deteriorated and deposit withdrawals kept increasing, these limits became relevant. In this context, the capital controls were simply a measure taken by the Greek government in response to the huge deposit outflows caused by a lack of confidence. The focus now needs to be on the future and on normalising the situation in the best and quickest way possible. [...]
As you know, we have an important challenge ahead of us, namely the recapitalisation of the banks. One thing remains unclear to us and that is whether this is tied to the completion of the review.
The Eurogroup statement of 14 August is clear about the timeline and conditions for the recapitalisation of the banks. A first tranche of EUR 10 billion for possible bank recapitalisation and resolution needs has already been made available. A second tranche of up to an additional EUR 15 billion can be made available after the first review and no later than 15 November, subject to the completion of the planned Asset Quality Review and stress test and the implementation of the financial sector deliverables of the review. [...]
Greek banks currently seem to be operating like “zombies”. Do you think this will change after the recapitalisation?
The key aim of the recapitalisation is to enable these banks to function normally and to be in a position to support the economic recovery in Greece by providing credit and other financial services. Robust capital and liquidity positions are necessary conditions for achieving this objective, which is why the process of bank recapitalisation and its smooth implementation are so important. Given that the upcoming recapitalisation will involve significant amounts of public money, it is critical that banks are controlled by highly professional boards complying with state-of-the-art governance standards. This will also ensure that the state funds used for recapitalising banks can be recouped via privatisation. Having said this, further measures are needed for banks to remain sustainable in the longer term. In particular, banks will have to intensify their efforts to resolve the high levels of bad or so-called non-performing loans and the relevant authorities will need to remove the remaining obstacles hampering progress in this area. [...]
Is a bail-in of depositors completely off the table?
The ECB insisted that a bail-in of depositors should be excluded, as it deemed any such measure to be counterproductive for the economic recovery and harmful for the Greek economy. It would have had a very negative impact on the private sector. [...]
The prime minister, and also some ministers, have talked of trying to renegotiate part of the programme. Is there any scope for this or is this a move that could backfire?
[...] the key pillars and objectives of the programme must not be put into doubt. It is thus significant that the Greek prime minister said to the parliament last week that he intends to implement the bail-out agreement with no delays and to conclude the review successfully. The Greek government should show that it has taken ownership of the various programme deliverables and is determined to achieve them. [...]
Is debt relief important for Greece and, if so, when should it come?
Well, I believe that two elements will be important in the coming months. The first is the one that I have just mentioned: strong ownership of the programme and determination in its implementation. The second one is debt sustainability. We have expressed concerns about current debt sustainability. In our view, there will have to be an element of debt relief. However, debt relief would not be credible if it is not accompanied by the first element. [...]Ownership and compliance will give credibility to debt relief, especially given the economic developments of the last ten to 12 months.
Some people think that this programme is not sustainable because there is an element of overtaxation of the private sector. Are you worried about that ‒ that people will not be able to pay their taxes again?
Achieving a sustainable, strong recovery requires fiscal sustainability, in a growth-friendly manner. This should come through reductions in unproductive government spending and through shifting the tax burden away from labour to taxes which are less detrimental to growth, such as those on consumption or property. That is what both the theory and evidence suggest. Indeed, the fiscal consolidation strategy foreseen in the third programme relies heavily on measures which are less detrimental to growth, such as a reform of the country’s valued added tax system and a reduction in military spending and subsidies. An important issue is how Greece will cope with curbing tax evasion. [...]
Are you satisfied with the results of quantitative easing (QE), or do you think that you overestimated its impact?
We are satisfied with QE, as it has met and even surpassed our initial expectations. Both the financial markets and the banking sector are giving indications that QE is working. Actually, this was first seen in the financial markets. Interest rates at all maturities went down to historically low levels. QE has had a favourable impact on the cost and availability of credit for firms and households. The volume of credit is now expanding, and what is interesting is that it is also expanding in the so-called stressed countries. The overall cost of lending by banks to the private sector has decreased by something like 80 basis points since we announced the measures, and by much more for the “stressed countries”. The spreads between large enterprises and small and medium-sized enterprises (SMEs) lending costs have also gone down, which is an important element. [...]
There seems to be a “theological debate” regarding austerity and a fear of inflation, as you know. What’s your position on this?
If we look at any measure of inflation, we see that it takes quite an effort to raise inflation expectations and actual inflation to the levels that are consistent with our objective of “below, but close to 2%” in the medium term. In March, when we started purchasing assets at a pace of EUR 60 billion per month, we were forecasting that inflation would be back to 1.8% by 2017. Now, largely because of the lower oil prices, but also because the global growth outlook has weakened, these projections have been revised downwards to 1.7% by 2017. Therefore, it presently appears that it will take somewhat longer than previously anticipated for inflation to come back to, and stabilise around, levels that we consider sufficiently close to 2%.
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