Draghi talks more about com­ing QE

Financial Mirror (Cyprus) - - FRONT PAGE -

Mario Draghi, Pres­i­dent of the Euro­pean Cen­tral Bank (ECB), spoke on Mon­day to the Euro­pean Par­lia­ment’s Eco­nomic and Mon­e­tary Af­fairs Com­mit­tee. While there are many com­ments in the pre­pared notes and in­tro­duc­tion, some ad­di­tional com­ments should be ex­pected from Draghi. The one take­away that in­vestors should feel is that ad­di­tional quan­ti­ta­tive eas­ing is ex­pected to ar­rive in Europe - and per­haps sooner rather than later.

Draghi’s first em­pha­sis was that euro area growth mo­men­tum has weak­ened over the sum­mer months and most re­cent forecasts have been re­vised down­wards. While Draghi main­tains that the ex­pec­ta­tions for a mod­er­ate re­cov­ery in 2015 and 2016 re­main in place, key is­sues such as high un­em­ploy­ment, ex­cess ca­pac­ity and on­go­ing and nec­es­sary bal­ance sheet ad­just­ments are all con­sid­ered is­sues likely to dampen the com­ing re­cov­ery.

On the scale of the mea­sures that could be taken by the ECB, Draghi specif­i­cally noted lend­ing op­er­a­tions, as well as out­right pur­chases that can de­liver the in­tended support to in­fla­tion and the re­cov­ery of the euro area econ­omy. He added, “All th­ese mea­sures will have a size­able im­pact on our bal­ance sheet, which we ex­pect to move to­wards its early 2012 di­men­sion.”

Draghi said: “We need to re­main alert to pos­si­ble down­side risks to our out­look for in­fla­tion, in par­tic­u­lar against the back­ground of a weak­en­ing growth mo­men­tum and con­tin­ued sub­dued mon­e­tary and credit dy­nam­ics. We there­fore need to closely mon­i­tor and con­tin­u­ously as­sess the ap­pro­pri­ate­ness of our mon­e­tary pol­icy stance. If nec­es­sary to fur­ther ad­dress risks of too pro­longed a pe­riod of low in­fla­tion, the Gov­ern­ing Coun­cil is unan­i­mous in its com­mit­ment to us­ing ad­di­tional un­con­ven­tional in­stru­ments within its man­date. In this con­text, we have also tasked rel­e­vant ECB staff and Eurosys­tem com­mit­tees with the timely prepa­ra­tion of fur­ther mea­sures to be im­ple­mented, if needed. Such mea­sures could in­clude fur­ther changes to the size and com­po­si­tion of the Eurosys­tem bal­ance sheet, if war­ranted to achieve price sta­bil­ity over the medium term.” One thing that has re­mained con­stant is a call for struc­tural re­form.

Now we are also hear­ing more about frag­men­ta­tion across na­tional bor­ders as well. Draghi said: “Mon­e­tary pol­icy alone - how­ever - can­not over­come fi­nan­cial frag­men­ta­tion in the euro area. Frag­men­ta­tion across na­tional bor­ders also re­flects un­der­ly­ing na­tional im­bal­ances and in­sti­tu­tional de­fi­cien­cies. Over­com­ing th­ese re­quire de­ter­mined struc­tural re­forms on the side of na­tional gov­ern­ments to im­prove the business en­vi­ron­ment and set­ting in­cen­tives to invest, with the aim to boost pro­duc­tiv­ity, cre­ate new jobs and raise the growth po­ten­tial of the econ­omy.”

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