ECB chief: ‘There will have to be an element of debt relief’
As far as the European Central Bank is concerned, Grexit was never on the table, Mario Draghi says in interview with Kathimerini on Sunday
Greece must be given some form of debt relief provided it fulfills the terms of the third bailout deal, European Central Bank President Mario Draghi said in an interview with Kathimerini on Sunday.
Repeating concerns about current debt sustainability, the ECB chief said that “there will have to be an element of debt relief.”
Meanwhile, the Italian official calls on the Athens government to take ownership of the program while warning that the debt-wracked nation will only return to a sustainable course if it sees through the structural reforms included in the agreement.
Draghi takes the opportunity to send a message to the Greek people: “Do not let a sense of desperation take over again. Fight to maintain the stability that you have rebuilt at a great cost, and very soon you will see the benefits.”
The decision to impose capital controls, as well as the one to lift them, lies with the government of Greece. It is quite clear that its decision to put them in place was the result of a series of developments that saw the Greek banking system move into some very difficult terrain, with massive deposit outflows. Savers and depositors had lost their confidence in banks at that time. The bank holiday and the capital controls then decided upon by the Greek government were the only way to stabilize the banking system in the short run and, thus, to protect both depositors and borrowers. By the same token, the Greek government will decide to lift capital controls when it is convinced that confidence has returned.
We face varying criticisms in differ- ent countries. Some have said that we were too lenient toward the Greek banking sector; others, that we were too harsh. One could say that this is the price we have to pay for our independence. But the truth is that the ECB is bound by the Treaty on the Functioning of the European Union, which prohibits monetary financing. There was no special treatment in favor 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 normalizing the situation in the best and quickest way possible.
Let me be clear: The ECB is not driven by political considerations. It is the central bank of the 19 countries of the euro area, including Greece. Furthermore, the ECB cannot breach Article 123 of the Treaty, which prohibits monetary financing. May I also remind you that, at the time in question, the prospects for the Greek economy were quickly deteriorating. Since then, many things have taken a turn for the better in a very short period of time, and we have to give credit to the Greek prime minister, to the Greek government and really to the Greek people for that.
The Eurogroup statement of August 14 is clear about the timeline and conditions for the recapitalization of the banks. A first tranche of 10 billion euros for possible bank recapitalization and resolution needs has already been made available. A second tranche of up to an additional 15 billion euros can be made available after the first review and no later than November 15, subject to the completion of the planned asset quality review and stress test and the implementation of the financial sector deliverables of the review.
The key aim of the recapitalization 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 recapitalization and its smooth implementation are so important. Given that the upcoming recapitalization will involve significant amounts of public money, it is critical that banks are controlled by highly professional boards complying with stateof-the-art governance standards. This will also ensure that the state funds used for recapitalizing banks can be recouped via privatization [...]
You know, I have been asked this question so many times, in press conferences, in the Eurogroup and in the European Council. My answer has invariably been that the ECB has always acted on the assumption that the current members of the European Monetary Union will stay members, Greece being one of them. It is not for the ECB to decide which country can be a member of the euro area. The ECB has acted and will continue to act on that basis.
As far as the ECB is concerned, it was never on the table. I think we have demonstrated that consistently in the past, no matter what others have said or were said to have been saying.