Introductory statement to the press conference (with Q&A)

Mario Draghi, President of the ECB,Frankfurt am Main, 9 January 2014

Jump to the transcript of the questions and answers

Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. Let me wish you all a Happy New Year. I would also like to take this opportunity to welcome Latvia as the eighteenth country to adopt the euro as its currency. Accordingly, Mr Rimšēvičs, the Governor of Latvijas Banka, became a member of the Governing Council on 1 January 2014. We will now report on the outcome of today’s meeting of the Governing Council.

Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. Incoming information and analysis have continued to confirm our previous assessment. Underlying price pressures in the euro area are expected to remain subdued over the medium term. In keeping with this picture, monetary and credit dynamics remain subdued. At the same time, inflation expectations for the euro area over the medium to long term are firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2%. Such a constellation continues to suggest that we may experience a prolonged period of low inflation, to be followed by a gradual upward movement towards inflation rates below, but close to, 2% later on. Against this background, the Governing Council strongly emphasises that it will maintain an accommodative stance of monetary policy for as long as necessary, which will assist the gradual economic recovery in the euro area. Accordingly, we firmly reiterate our forward guidance that we continue to expect the key ECB interest rates to remain at present or lower levels for an extended period of time. As previously stated, this expectation is based on an overall subdued outlook for inflation extending into the medium term, given the broad-based weakness of the economy and subdued monetary dynamics. With regard to money market conditions and their potential impact on our monetary policy stance, we are monitoring developments closely and are ready to consider all available instruments. Overall, we remain determined to maintain the high degree of monetary accommodation and to take further decisive action if required.

Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP in the euro area rose by 0.1%, quarter on quarter, in the third quarter of 2013, following an increase of 0.3% in the second quarter. While developments in industrial production data for October point to a weak start to the fourth quarter, survey-based confidence indicators up to December have improved further from low levels, overall indicating a continuation of the gradual recovery in economic activity. Looking at 2014 and 2015, output is expected to recover at a slow pace, in particular owing to some improvement in domestic demand supported by the accommodative monetary policy stance. Euro area economic activity should, in addition, benefit from a gradual strengthening of demand for exports. Furthermore, the overall improvements in financial markets seen since the summer of 2012 appear to be working their way through to the real economy, as should the progress made in fiscal consolidation. In addition, real incomes have benefited recently from lower energy price inflation. At the same time, unemployment in the euro area remains high, and the necessary balance sheet adjustments in the public and the private sector will continue to weigh on economic activity.

The risks surrounding the economic outlook for the euro area continue to be on the downside. Developments in global money and financial market conditions and related uncertainties may have the potential to negatively affect economic conditions. Other downside risks include higher commodity prices, weaker than expected domestic demand and export growth, and slow or insufficient implementation of structural reforms in euro area countries.

According to Eurostat’s flash estimate, euro area annual HICP inflation was 0.8% in December 2013, compared with 0.9% in November. This outcome was broadly as expected and reflected lower services price inflation. On the basis of prevailing futures prices for energy, annual inflation rates are expected to remain at around current levels in the coming months. Over the medium term, underlying price pressures in the euro area are expected to remain subdued. At the same time, inflation expectations for the euro area over the medium to long term continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2%.

The risks to the outlook for price developments continue to be seen as broadly balanced over the medium term, with upside risks relating to higher commodity prices and stronger than expected increases in administered prices and indirect taxes, and downside risks stemming from weaker than expected economic activity.

Turning to the monetary analysis, data for November support the assessment of continued subdued underlying growth in broad money (M3) and credit. Annual growth in M3 was broadly unchanged at 1.5% in November, after 1.4% in October, following two consecutive declines in September and August. Annual growth in M1 remained strong at 6.5%, reflecting a preference for liquidity, although it was below the peak of 8.7% observed in April 2013. As in previous months, the main factor supporting annual M3 growth was an increase in the MFI net external asset position, which continued to reflect the increased interest of international investors in euro area assets. The annual rate of change of loans to the private sector remained weak. The annual growth rate of loans to households (adjusted for loan sales and securitisation) stood at 0.3% in November, broadly unchanged since the beginning of 2013. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) was -3.1% in November, following -3.0% in October. Overall, weak loan dynamics for non-financial corporations continue to reflect their lagged relationship with the business cycle, credit risk and the ongoing adjustment of financial and non-financial sector balance sheets.

Since the summer of 2012 substantial progress has been made in improving the funding situation of banks. In order to ensure an adequate transmission of monetary policy to the financing conditions in euro area countries, it is essential that the fragmentation of euro area credit markets declines further and that the resilience of banks is strengthened where needed. The forthcoming comprehensive assessment by the ECB will further support this confidence-building process. It will enhance the quality of information available on the condition of banks and result in the identification and implementation of necessary corrective actions. A timely implementation of further steps to establish a banking union will help to restore confidence in the financial system.

To sum up, the economic analysis indicates that we may experience a prolonged period of low inflation, to be followed by a gradual upward movement towards inflation rates below, but close to, 2% later on. A cross-check with the signals from the monetary analysis confirms this picture.

As regards fiscal policies, it is important not to unravel past efforts but to sustain fiscal consolidation over the medium term. Fiscal strategies should be in line with the fiscal compact and should ensure a growth-friendly composition of consolidation which combines improving the quality and efficiency of public services with minimising distortionary effects of taxation. When accompanied by the decisive implementation of structural reforms, this will further support the gradual economic recovery in the euro area and have a positive impact on public finances. Reforms in product and labour markets and a rigorous enactment of Single Market policies warrant particular focus to improve the outlook for economic growth and to foster job creation in an environment of high unemployment.

We are now at your disposal for questions.

Question: Mr Draghi, I noticed that, in your introductory statement, you have changed the language a bit to place greater emphasis on the accommodative nature of your monetary policy stance. You emphasise this accommodative nature, and you firmly reiterate your forward guidance. Might this change in language signal that you consider the recent rise in money market rates unwarranted? Or could you perhaps explain what might have prompted that change?

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My second question is on liquidity operations. Some of your colleagues recently appear to have suggested that it might be difficult to devise an operation that would target funds to the real economy, and I was just wondering where the debate on that issue stands at the moment?

Draghi: Yes, you are right. We have used firmer words to indicate the strength in our forward guidance, which basically means that we reiterate our decisiveness to act as needed. And we believe that current market developments are okay, but we think that there are two scenarios that would cause us to act: one is an unwarranted tightening of the short-term money markets, and the other one is a worsening of our medium-term outlook for inflation. That, basically, is what this firmer language is addressing.

On your second point, developments in excess liquidity have attracted a great deal of attention. But let me reiterate once again that it is very, very difficult to draw conclusions on a relationship – a stable relationship – between figures on excess liquidity and the EONIA. Let me give you some figures here: if we look at the figures of 30 December 2013, we have excess liquidity in the order of €274 billion and the EONIA standing at 22 basis points. If we take the figures of 6 January 2014, i.e. those recorded one week later, we have €276 billion of excess liquidity, while the EONIA stood at only 10 basis points. Now, one could, of course, say this is related to technical market factors at the year-end, to a technical development, but you would see the same outcome and come to the same conclusion, if you undertake a somewhat broader comparison. If you look at the excess liquidity recorded on 19 December 2011, you will see excess liquidity standing at around €300 billion and the EONIA at 57 basis points. Let us then move to 15 May 2013: excess liquidity was €303 billion, i.e. roughly the same amount as on 19 December 2011, but the EONIA was only 8 basis points. It is thus very, very difficult to draw the conclusion that there is a stable relationship between the two variables.

Question: But my second question was whether you discussed an LTRO and how to structure it?

Draghi: As usual, we discussed all possible instruments that might cope with these two broad scenarios and our discussion will continue, is taking place as usual.

Question: If I could just press you on the last point you made. When you talk about this readiness to act and all available tools, can you give us a sense of what these tools are, whether these are traditional interest rate cuts, deposit rates, the LTROs, quantitative easing. What is in your toolkit, and what would happen if the conditions that you have laid out were to be met and more easing was to be required? And my second question is on banking union: how concerned are you about the adequacy of the public backstops for the resolution of any problem banks? Or, if there are holes in the asset quality review, and if the money is not there, is there a risk that this maybe undermines confidence, rather than mere confidence-building exercises?

Draghi: On the first point: we have several instruments that we can use and our choice will depend on what actually happens. Some of these instruments would more easily address certain developments in the short-term money markets, while others would be better suited to address a broader worsening of our medium-term outlook. So, I think that it is pointless at this stage to speculate on which instrument we would use. But let me be absolutely clear on a more general matter: we have a mandate to maintain price stability, in both directions. Thus, all instruments that are permitted by the Treaty would be eligible for use by the Governing Council. Let me make this point absolutely clear.

On your second question, were you referring to the public backstops related to the outcomes of the asset quality review, or were you referring to the single resolution mechanism (SRM)?

Question: Yes, both.

Draghi: And what leads you to think that there are no such backstops in place? There has been a solid commitment by leaders, which has been confirmed by the Ecofin Council and by the Eurogroup, so that all governments have basically committed themselves to provide these public backstops that would be put in place according to established regulations, which means basically that all the list of creditors will have to be bailed-in, and so on and so forth. The rules on state aid would thus have to be complied with. So I think there is an explicit commitment that I frankly have no reason to call into question.

Question: President Draghi, given the ongoing weakness in lending that you mentioned in your introductory statement, would you say that the need to undertake the asset quality review (AQR) has delayed the recovery in lending, because of banks seeing the need to tidy up their balance sheets? And, if you do recognise that, then is there anything you can do to mitigate that, or would you intend to try and mitigate that?

And my second question is about the member of the Executive Board who will eventually take up a position as the Vice-Chair of the Supervisory Board. You stressed in the past the need to have separation here, so I would be interested if you could explain what role that board member will play in Governing Council debates on monetary policy. Will that person exercise a vote or abstain from activity on the monetary side?

Draghi: I will answer the second question first. I will quote from the Statute of the ESCB and of the ECB. It states that “each member of the Governing Council shall have one vote”, so this is part and parcel of the Treaty and cannot be changed. Having said that, we will certainly make sure, and are actually already making sure, that there are enough degrees of separation so as to absolutely establish that the two decision sets are kept separate. That is what we are doing, separation within the Treaty.

Regarding the weakness in lending and whether the AQR may have increased this, one certainly might have some short-term deleveraging by the banking system in order to be prepared for the AQR. However, one has to counterbalance this with two other considerations. One is the long-term greater health of the banking system – when I say long-term, I am not talking about years, but about the end of this year, when the AQR will have been completed. The banks are actually undertaking corrective action even before the AQR takes place, as you yourself suggested. So, by the end of this year, we will certainly have a stronger and more transparent banking system. Markets will be able to better understand what is on the banks’ balance sheets. That is the second point: one has to balance the short-term implications with the fact that, as you can see, the capital markets have reopened for banks. And here I would like to draw your attention to a very interesting piece of data. You know that after the Lehman crisis, the spread between non-financial corporate issuance and financial or banking issuance moved up substantially, and stayed high for quite a long time. Our figures now show that this spread has disappeared; to me, this is a very important signal of some improvement in financial markets. I think it has fallen to zero, by and large.

Finally, let me make a general consideration. I don’t think we want to repeat the mistake made by other countries in not repairing the banking system when it is time to do so. We have seen that an unhealthy banking system slows down the transmission of monetary policy and hampers credit. I am not saying we have a fragile banking system, but it is very important to address this concern and to avoid a credit crunch. That is why we want to do it. So, while it is true that there may be short-term implications, you want to counterbalance them with all these considerations. In the end, the scale is very much on the side of taking action.

Question: The fall in core inflation to a record low in December has prompted some calls from some analysts for more action from the ECB straight away. Were the views of analysts shared by any members of the Governing Council today in calling for more action immediately? And second, you mentioned in the answer to one of the questions that all instruments allowed by the Treaty would be eligible if necessary. Can you just confirm whether that includes outright asset purchases or not?

Draghi: On the second question, as I said before, I would not want to go into the specifics. I want to be absolutely clear though that we have a mandate to ensure price stability in both directions. And the Governing Council is ready to use all the instruments that are allowed by the Treaty.

On your first question, we were all aware that the decline in the inflation rate in December 2013 was, first of all, expected. It was caused by a technical adjustment affecting the seasonality of the services inflation statistics in Germany, which basically meant that the December 2013 data came out much lower than in November. Fortunately this was a one-off event.

Question: Mr Draghi, after three years of crisis, bond markets in Europe seem now to be in better shape, or at least to work more normally, especially in the south of the euro area. There is still a lot to do, but how do you see this evolution and what do you expect for the coming months?

Draghi: Well, there are many reasons for this, some of which we are actually still exploring. But there is no doubt that conditions in the financial markets have been gradually easing since July 2012. This is certainly due to the ECB’s actions, but equally important are the actions by governments, both in fiscal consolidation and in some countries – which are, by the way, the ones that are now seeing the greatest benefits – in undertaking the needed structural reforms. And third, we have to look at what has happened since then to the general euro governance and the progress that has been made on the banking union. I know that many commentaries always look at the glass as being half-empty, but this is not true. If you just have some historical perspective and look how euro area governance was one-and-a-half to two years ago and you compare this with what it is today, there has been an extraordinary, very significant step forward. I think these three factors explain some of the improvements, but frankly there are also other factors that will still have to be analysed.

Question: President Draghi, you said recently in an interview that we must take care not to get stuck in a period of inflation below 1%, thereby slipping into a danger zone, and in the introductory statement you noted that inflation will be staying around current levels for the coming months. How long can you be below 1% before you have to do something? My second question is about money markets. You just talked about the nexus between excess liquidity and money market rates and we are seeing that some money market rates are now at a higher level than they were last summer when you said they were unwarranted. Could you maybe explain a little bit what’s driving them at the moment?

Draghi: On the first point, as I said, inflationary pressures are going to remain subdued for quite some time. Now they are projected to stay subdued, below the level of 2%, for at least two years. But we have to look at it from a medium-term perspective and, so far, this is quite in line with our baseline scenario. We will act when we have reason to think that our medium-term assessment for inflation is changing for the worse and, as I said before, we stand ready to act and we stand ready to use all the needed instruments that are allowed by the Treaty. We have our mandate, we are acting within our mandate and we have to use the instruments that are allowed by the Treaty.

On the second point, short-term money market rates depend on a variety of factors. Our forward guidance, strengthened by the decision that we took in November, has produced, I would say, quite a successful stabilisation of the interest rate curves in the short term. It certainly has reduced uncertainty about interest rates – the volatility of interest rates – and also uncertainty about monetary policy actions. We have clarified our reaction function, but we have to keep in mind that there are all kinds of influences on these rates, some of which have to do with our own euro area economy and some of which have to do with external factors. Our view is that after the forward guidance that has been issued and strengthened by our November decision, the factors that have to do with our own economies are now predominant. In other words, to some extent, the euro area is fairly insulated from outside developments and I think that’s what we are seeing now. And the overall situation is very different from what it was in July.

Question: My question relates to the bond markets again. This week we have seen the Irish come back to the market and the success of the refunding exercise. So, does that back up some of the comments that we have heard from Commission politicians, who have said that we can now declare victory on the euro area crisis? Or, given some of the figures that we have discussed, like the 12% unemployment rate for the euro area, the high levels of youth unemployment, etc., is it premature for us to describe this crisis as being over, and can we actually declare victory as some politicians have done, politicians who are obviously trying to reach out to a broad platform? Your views on this would be very welcome.

Draghi: I would be very cautious about saying that, very cautious indeed. Unemployment stands at over 12%. The only positive news is that this unacceptably high unemployment rate is stabilising. In other words, it is not continuing to go up each and every month. However, it still stands at over 12%. The recovery is there, but it is weak, it is modest. As I have said many times, it is also fragile, meaning that there are several risks – from financial and economic risks, through geopolitical risks, to political risks – that could easily undermine this recovery. Fortunately, we can see that the recovery, which was initially based exclusively on export growth, is now very gradually extending into domestic demand. But it is still premature to declare victory. As someone observed earlier, that is why we are using an even firmer language for our forward guidance. I think that if you look at the drivers of this recovery, on the one hand we have export growth, and we think that global demand may continue to be what it is and, if anything, increase. On the other, we have domestic demand, where the following factors are actually helping the recovery to spread: The first factor is certainly our very accommodative monetary policy stance, which is finally finding its way through the economy. The second effect, which relates to what you said about the bond markets, is confidence: confidence is gradually coming back. The third factor is that there is also somewhat less of a fiscal drag than there was last year. Finally, the very low inflation rate is, in itself, supporting real disposable income. Now, if you examine these four factors, you see how easy it is to turn some of them into their opposite, certainly not the monetary policy stance, because it is a policy decision, but confidence, for example. Confidence has returned, but six months ago we would not have said that. Even three months ago, we would not have been that explicit. So, we want to see confidence for a relatively long time before we can say we can declare victory. I would say that things are slightly better: our baseline scenario is being confirmed.

Question: First, would you say today that deflation risks are no higher than they were in November, when the ECB promptly decided to cut rates after the very low inflation rate of October? Second, the ECB issued a statement on SEPA migration. When we read between the lines, it seems that the ECB is kind of upset about the possibility of delaying the end of migration. Could you maybe elaborate on this?

Draghi: With regard to the first question, I have really kind of answered that before. The data that came out in December 2013 were essentially the result of a technical issue, what some people would call a quirk, in the statistics on services inflation in Germany.

As for the second question, I am not sure what you mean by “between the lines”: I would say that it is the Commission’s initiative and thus the Commission’s view.

Question: First, a short question, is there any news regarding the protocols of the Governing Council meetings? And a second question, to come back to the SEPA migration issue. Could you elaborate a little more on why the Eurosystem seems obviously to be sceptical about postponing the deadline for the migration? Is it just not necessary from your point of view or is it sort of problematic or even dangerous? Perhaps you can say a little more about that.

Draghi: On the second question, what we were observing recently is that finally migration was picking up and I can give you some figures. First of all, there have been significant efforts by the majority of the stakeholders in the euro area. For example, the November migration figures show a significant increase in SEPA direct debits, to 26% of total transactions, more than double the October figures, when they had increased by 11.5%, and almost four times the September figures, when it was only 7%. So, based on the feedback we get from the industry and from the markets, we do expect this growth rate to continue as we speak. As for credit transfers, 64% of transactions in November were already SEPA-compliant. And they were up from 60% in October. That is why, in a sense, we want to see this migration completed, we think it is of benefit for the consumers, first and foremost, and in a sense indirectly also for the banks.

As for the minutes, we still are reflecting on it. The Executive Board will present soon a first proposal. I kind of used the wrong word, not “minutes”, I’d say “accounts”; you said “protocols”. We will discuss it. But as I have said many times, in a sense it is not an easy issue. It is complicated by the fact that the ECB wants to be – we think we are transparent already – even more transparent, giving some richer information about our deliberations, about our discussions. At the same time, we have to keep in mind that we are not a one-country environment and this implies that we have to be the jealous guardians of the independence of our Governing Council members.

Question: Jack Lew, the US Treasury Secretary, was just in Paris, Berlin and Lisbon this week. I attended his press conference in Paris and he said that the United States was looking for a growth agenda that has to be rooted in investment and demand, and it was clear that some countries have more capacity to stimulate growth and demand than others do. I have a suspicion he was talking about Germany. Is that view shared by the ECB, that there are countries here maybe with current account surpluses that need to step up and stimulate demand?

Draghi: Let me make just two points on this. In a speech I gave in Berlin about a month ago, I quoted President Abraham Lincoln. He famously said: “You cannot make the weak stronger by making the strong weaker”. You want to promote growth, but you are not doing it by weakening the country that is best performing in the euro area. All the euro area members benefit from this performance. If there are, as there are, structural investments, infrastructure investments to be done, they ought to be carried out. Regardless, in a sense, of what is the consequence, they ought to be carried out. So, the policy advice is really: continue your successful performance and take care of the weaknesses in investments where needed. I never understood very well the idea that by making Germany weaker you would benefit other countries in the euro zone or by undermining the fundamentals upon which this strength is based one would make the other countries stronger.

Question: Mr President, you have given us an account of the effectivity of the measures being taken within this crisis. Could you please also give us an outlook and your account of where you see the main risks in the forthcoming months that could undermine this effectivity? And secondly, just to clarify: in the last months, you have always told us that the ECB Governing Council currently sees no deflationary pressures. Now we see a rather negative outlook for the coming months. Is this still the stance the ECB Governing Council has?

Draghi: There are, as I said in the introductory statement and as unfortunately I have been saying now for months, downside risks to the economic recovery, and the downside risks stem from all the uncertainties – financial and political uncertainties, commodity prices – all the uncertainties that could undermine the main factors driving the recovery: loss of confidence, even political crisis. So, these could all, in a sense, undermine the success of this very modest recovery. On the inflation side, as you say, this is our baseline scenario; we do not see deflation right now, but, if we were to have low inflation for a very protracted period of time, it is quite clear that we should be extremely aware of the potential downside risks. Right now we see limited upside risks and limited downside risks for the inflation path. And let me also add that when we define deflation as a broad-based, self-fulfilling, self-feeding fall in prices, we do not see that in the euro area. Even when we look at individual countries we may actually see negative inflation rates in one or two countries, but then we should also ask how much of this is due to the necessary rebalancing of an economy that had lost competitiveness and had gone into a financial and budgetary crisis? And how much of it is due to actual true deflation? So, by and large, we do not see deflation in the Japanese sense of the 1990s.

But we asked ourselves – and perhaps I have explained this on another occasion – are we close to the Japanese scenario? And the answer we gave ourselves is no, we are not. For a variety of reasons. The first one of which is the most important, i.e. that the ECB has taken decisive action at a very early stage of this crisis. The second is that the condition of the balance sheets of the banking sector and the corporate sector is not as bad as it was in the 1990s there. The third reason is that we are now proceeding fast with the asset quality review (AQR), which will lead to the repair of our banking system. And the final reason is that if we look back at how long-term inflation expectations were actually behaving in Japan at that time, we would find out that they were actually not firmly anchored. That is why it is so important that our inflation expectations remain firmly anchored, because they tell people that in a certain amount of time, over the medium term, inflation will go back to our objective, namely close to but below 2%.

Question: I am wondering: can the ECB ever run out of money?

Draghi: Technically, no. We cannot run out of money. We have ample resources for coping with all our emergencies. So, I think this is the only answer I can give you.

Question: My first question is on inflation. You said that the small decrease in December 2013 was broadly as expected and that you expect annual inflation rates to remain at around current levels. Does this also mean that you would not be surprised if annual inflation rates fell a little bit further in the coming months as some economists expect, or would you expect them to go up at least a little bit? So, if annual inflation rates decrease further, does this mean that it would change your medium-term inflation projections? Secondly, on your relationship with the Germans and the German public or the ECB and the Germans, you said in an interview that there was a perverse angst in Germany that things were turning bad. Do you really think that this was helpful for increasing the understanding and support in Germany for the ECB’s policy?

Draghi: In answer to the first question, we have a baseline scenario, which was presented in the most recent macroeconomic projections by ECB staff and includes the inflation figures for the next two years. We don’t expect anything other than our baseline scenario. Otherwise, you wouldn’t call it a baseline scenario. On the other point, let me say a couple of things. First of all, if I can find the actual definition of perverse in English, I would be very glad. There is a difference between perverse and perverted, and I think there was a misunderstanding there. My second point is that there were two issues in this interview. Let me quote: “Are you saying that the euro crisis is over?” That was the question. The answer was: “No, but the fears felt by some sectors of the public in Germany have not been confirmed. What haven’t we been accused of? When we offered European banks additional liquidity two years ago, it was said there would be a high rate of inflation. Nothing has happened. When I made my comment in London, there was talk of a violation of the central bank’s mandate. But we had made clear from the beginning that we are moving within our mandate. Each time it was said, for goodness’ sake, this Italian is ruining Germany. There was this perverse angst (not perverted angst) that things were turning bad, but the opposite has happened: inflation is low and uncertainty reduced”. That is what I said. So, the angst referred to inflation angst. It’s also been commented that there is another angst which is actually very serious and very real. We should all be concerned, not only in the euro area, but in most developed countries, that there is the angst of people who are preparing for their old age. The angst of people whose pension plans are being reduced in capital value by the very low level of interest rates. That’s a different thing and a serious problem, which the low inflation and low interest rates carry with them. So we are also thinking about this and are very aware of this problem. It’s a very reasonable angst and we are confident that, as the recovery takes place and gets firmer and firmer, we will see better rates of return on the investments of the pension plans and the insurance plans. And I would also comment that these rates of return have little to do with our short-term rates. So, even though the ECB is depicted as the institution that is actually keeping rates low, we are not talking about the same rates. The rates of the pension plans are long-term rates. We are talking about short-term rates in our policy, so the two things are different. Now, the definition of perverse is “persistent in error; different from what is reasonable”. Of course, that’s one of many definitions, but it’s the one I was referring to.

Question: Allow me to come back to the topic of SEPA migration. You’ve given us some average figures for the euro area on the percentage of transfers that are made in accordance with the SEPA standards now or were made in October/November, but there are differences between countries. How do you explain the fact that some countries are lagging behind so much, especially Germany? Why is it that Germany in particular is coming so late to SEPA migration?

Draghi: I don’t really want to comment on specific countries, but I can give you the names of the leaders. They are Finland, Luxembourg, Slovenia and Slovakia, with migration rates close to 100% for credit transfers. Finland and Slovenia are also close to 100% for direct debits. So, if we focus on growth rates, the migration is actually gaining momentum everywhere, even in Germany. In a sense, it’s quite understandable that the larger and more complex banking systems take longer to achieve what is an amazing migration to a single European system. Certainly, what I can see now is a general significant effort by all the stakeholders in the euro area, i.e. banks, corporates and so on. And, as I have said, larger and more complex systems will naturally take longer.

Question: I’d like to ask you for a few more details about the asset quality review. I’d like to know if there is consensus on the treatment of government bonds, just if you can give us a few more details on this. My understanding is that they would be considered as having no risk in the asset quality review – if you could be just a little more specific on this. And another question regards whether you have reached agreement on any date – a future date – for the publication of the details of the requirements for banks in view of the asset quality review.

Draghi: On the second point, we will come out with a second batch of information at the end of this month, in which we’ll say more about the asset quality review, we’ll say more about the stress tests. So that is the deadline that we’ve given ourselves.

On the first point, I’m afraid there is a certain amount of confusion. Government bonds are going to be treated in the review exactly like the Basel Committee is saying. So, government bonds are, in the Basel Committee regulation framework ^[1], risk-free, and that is one thing. Now, like all assets of the banks, they will be subject to stress tests. But they are risk-free. A different issue is what happens to the banking regulation, how the future banking regulation will treat government bonds. And that’s an entirely different issue which we don’t deal with here, but the natural place to discuss these issues is the Basel Committee – any change to the treatment of government bonds will have to be agreed at a global level.

Question: I’ m sorry if I missed your comments on this. Were there any board members who were in favour of a rate cut at this meeting or was the decision to hold the rate unanimous?

Draghi: As I said before, we had an extensive discussion on the state of the economy. We asked ourselves questions more about what sort of risk could undermine our baseline scenario. Could this modest recovery weaken all of a sudden? What would cause our medium-term assessment for inflation to worsen? And when I say “worsen” at this point in time, I mean to go down. Are the risks for inflation bigger in one direction or another? I said they’re limited on both sides and in the introductory statement I said they’re broadly balanced. And then we asked ourselves: what is an unwanted tightening on the short money markets, which could then translate itself into a threat to the recovery? These sorts of questions were discussed, and then of course we discussed all the instruments that would be used if such scenarios were to materialise.