Mario Draghi: "There is no plan B"
It is not easy to make Mario Draghi for an interview in his new service areas, to the east of the city of Frankfurt. To get to the 40th floor of the South Tower ECB, insert a checkpoint happen overcome locks and even change the lift. Draghi, who conducts the central bank since the end of 2011, like the generous view from the more than one billion Euro building. In an interview, the Italians are Prussian. For all the people who are responsible, it is important to be aware of their duties, Draghi says. And so he patiently answered the questions of Gabor Steingart, Sven Afhüppe and Hans-Jürgen Jacob. With those issues of 294 Handelsblatt readers. Does the Euro? What will happen to the savings at permanently low interest rates? In many European countries Draghi is celebrated as a hero, but in Germany the doubts about his policies are great.
Mr. President, Pope Francis finds, Europe WOULD elderly and sick these days. Share this judgment?
Europe must regain his confidence after the crisis. That can not happen as if by a miracle, but depends on European governments and the European institutions. The implementation of reforms and stable financial conditions are necessary. In this way, European citizens will regain confidence in the future and their chances. Trust is the basic requirement for a social and economic environment, in which people buy and invest. Europe has the opportunity to do, and I am committed to this goal explicitly. The Pope has said that Europe should for the sake of the rest of the world to regain his youth and health. It is up to all of us to realize that.
What causes this lack of trust that you diagnose?
This is a legacy of the various crises of 2008 and 2009, which brought the weaknesses of the old system relentlessly to light.
And what did you see?
We have seen that the debt of the banks and the nation-state was too high. Important rules of a market economy - for example, that risk and responsibility are inseparable - had been forgotten. All this has helped to shake the confidence of many citizens in Europe. Therefore, it needs structural reforms. I say this but for a very, very long time. I can only repeat myself.
They repeat themselves, but you remain unheard. The debt is everywhere continued to rise relative to the economic performance in the West. In Europe increased the national debt since the outbreak of the financial crisis in the fall of 2008 by almost 50 percent over the economic performance. Only five of the 18 euro countries currently meet the agreed by the Stability Pact debt ceilings.
One reason is that there has been progress in some parts of Europe in recent years even no growth. However, most countries are growing lately, albeit weakly. They have started to bring their public finances in order and implement structural reforms. As a result, the debt ratios decline for the first time. But all this takes time. And the important structural reforms - more flexible labor markets, less bureaucracy, lower taxes - are progressing much too slowly.
Is it a little more specific, Mr. President? Which countries in the euro zone must do more?
All.
Even Germany?
I have all said, some more, some less. I welcome the announcement by the German government, in addition to investing in infrastructure. Each country has its own agenda. Wherever governments have implemented reforms, there was a reform dividend. This applies first and foremost to Germany with his agenda in 2010. The country is now much stronger and more stable than the rest of the euro zone. Such examples are encouraging. The south of the Federal Republic was once farmland. Now is the heart of the high-tech location Germany here.
What about the highly indebted countries in the south of the continent?
Spain has very courageously started the liberalization and is now one of the fastest growing countries. In France and Italy, the readiness for reform grows. Some, such as the labor market reform in Italy are decided, other proposals were presented and discussed, which cost time. The real challenge is something concrete implementation. I understand the impatience. The reforms are long overdue: Now is the time to implement it. This is my message.
And what do you recommend to the parties in Greece? Ironically, in the country in which Europe's debt crisis has erupted, a new parliament must be chosen in a few weeks. If the left-wing opposition leader Alexis Tsipras win the elections threatens the end of the reform policy in Greece.
Now the Greek voters will have to decide on the future composition of the Parliament and the Government.
European Commission President Jean-Claude Juncker will give the countries France, Italy and Belgium over time, due to their much high debt. All three violate the agreed fiscal rule to spend more than three per cent of national income on new debt. Should there be an exemption again?
That is to assess task of the European Commission. In March, she will make comments. For the ECB, it is important that the European Stability and Growth Pact is adhered to. Compliance with the rules we have set ourselves, is an important source of confidence.
In truth you buy with your expansive monetary policy, pumps trillion euros in the markets, the governments but only time - and it seems as if no one would use this time properly. Do you feel alone in your fight for the preservation of the monetary union?
We have a mandate. This is to keep inflation under and also close to two percent. This is our legal obligation. And we must - as part of the contract which we have given the European Treaties - reach. But it is quite clear that our monetary policy would be much more effective if governments would implement structural reforms.
The ECB acts and waits ...
and you are done their duty. The others must also do their duty.
The question is, why do you ever see price stability at two per cent inflation? Zero percent would be a much better value, right?
The two-percent target of the Governing Council decided in 2003. It certainly would not strengthen the confidence to change targets when it is difficult to reach them. As an example, when we had three percent inflation, we would have otherwise yes can also define three percent as a target. We must be reliable. Inflation is low for some time. This is partly due to falling oil prices, high prices of corrections in some countries, but also to weak demand. Core inflation is for one year at around 0.7 percent. None of the major central banks has an inflation target of zero percent. The reason is simple: When you aim at zero per cent, then inflation is half the time below zero and half the time than zero. Then, when inflation is negative and the interest rates have fallen to zero, one can not further lower interest rates to bring inflation back to zero.
Are you afraid of deflation, ie a fall of prices and wages?
The risk is not eliminated, but it is limited. It is crucial that people expect inflation in the medium term. Since June, we see that this medium-term expectations have declined. If inflation remains low after a long time, it can happen that people rely on further reducing prices and simply shift their spending. So far we have not. But we have to go against this risk.
... So that there is a grotesque Result: The Fed is fighting for more inflation. This is strange for German, whose country has suffered two hyper-inflations and a new currency reform fears. Understand the malaise of our countrymen?
A look at history shows that falling prices the prosperity and stability of our communities as well as to threaten very high inflation. That is the reason why we have and make sure that the deflation does not occur, a symmetrical mandate. You as journalists have a duty to explain this to people. Public opinion in Germany is very important to us.
Your intentions are pure - the effects of your policy but for many citizens simply not acceptable. The people are worried about their savings and their retirement. You have not just created money in the style of Goldman Sachs, in shares, options and highly explosive bonds, but continued in their majority - more conservative - to savings accounts, German government bonds, life insurance. Because of the low interest rate policy of the ECB, they are currently experiencing a significant loss of prosperity. The savings melt, the distributions of the insurance as well.
Interest rates have long been very, very low - and it will probably stay that way for a while. People see that the returns on their savings and life insurance shrink. I understand the concerns of savers. After the crisis, Germany became a safe haven for investors from all over the world. A lot of money is therefore flowed into the country with the result of falling medium- and long-term bond yields, which are not determined by the ECB. The impacted many savers - but conversely, it has also relieves many people who have made debt, for example, to build a house.
Moment - it was your institution that has gradually reduced its key interest rate to 0.05 percent now. Money saved is not worth much in this environment.
In an environment of widespread economic weakness, our monetary policy must be expansive. Is the cause or effect? We must look at the entire euro zone. We came up with the idea to raise interest rates, then the crisis would get worse. The stability would suffer - and that would harm investors and savers even more. We keep interest rates low to stimulate the economy and achieve price stability.
In order to save the euro, you have mid-2012 announced decisive action - "whatever it takes", which should always be necessary. Does that mean that you are aware put the German savings for the euro rescue risk?
No. Quite the contrary. The risk is lower for the German taxpayer. Remember that the intercompany loans between banks in the ECB system, the famous "Target-2-loans" were much higher before? You have already almost halved.
The answer is not really reassuring. Low interest rates remain low interest rates.
In the US, interest rates were also at a low level, and people have complained. After the recovery began, the long-term interest rates have risen again. Similarly, interest rates will rise again in the Euro-zone, and normality is come again.
Many German savers still feel dispossessed. What is your advice?
The answer must insurers and banks whose business it is to evaluate risks and rewards, giving their customers.
What does that mean? Investors should diversify their risks globally?
I can not give them recommendations there. I am central bankers, no money investment advisor.
The US is in a better position, the economy is growing stronger. The Fed can retire, unlike the ECB in the Euro-zone. Why is Europe in a much worse position?
One reason is the lack of effective structural reforms. The ECB has the banks gives better ways they could lend more in principle. But there are countries where a young entrepreneur must wait nine months was the permission to open his business. And he still has to pay a license fee - all before he makes the first euro turnover. What incentive does this young self-employed well in the face of such obstacles to borrow money from the bank? This is a true story. And there are hundreds thereof.
They complain of state patronizing?
I complain about too much bureaucracy and high taxes. In Europe we have one of the highest tax burdens in the world. This is a serious competitive disadvantage.
... Not for Apple, Google and Starbucks to pay in Europe only between one and two percent tax.
Of apart. Citizens pay here between 45 and 55 percent of their income to the state. And this compares with 35 percent in the US and 33 percent in Japan. The triad of reform weakness, bureaucracy and tax burden hampering Europe recovery. If we do not solve this, our growth remains weak.
You have undisputed right in the diagnosis, but grows out even really an effective therapy? If the crisis countries would reduce taxes, their deficit is initially greater.
My advice is therefore: Give the budget consolidation does not stop! But fiscal policy must still be made more growth-friendly. The investment expenditure must be increased - research, education and the digital agenda are meant. Other editions as well as the taxes should be reduced.
In comparison with the United States, the political vacuum in Europe falls on. There is a lack of unified leadership, the euro zone is politically fragile, fragmented, only pan-European institution with clout, the ECB seems to be.
The way in which Europe is governed must be better. There must be a better Union as the one we know today. Once it was very helpful to establish common rules for state budgets ...
..the were not followed.
Yes, it was unfortunately in 2003 and 2004. The agreed rules must be observed. They are important for mutual trust, which is the basis for that sovereignty can be shared. The next level is a stronger political union. Until then, there is still a long way.
Angela Merkel and other government leaders may have European beliefs - but they have remained national decision-makers in everyday life. The nation-state has more revitalized in the wake of the financial and economic crisis.
The nation states do not have to abolish, but they need to better coordinate their policies. Why can we not make structural reforms together, simultaneously in several countries? Why choose the States no targets for all and watch together, how to develop the debt?
Maybe it just a lack of European leaders.
countries and markets are closely intertwined. If a country is not competitive, can not stand on its own when the labor market is encrusted there, then loaded this country others. Therefore, there is a pan-European view of things no alternative. Europe is European, as some politicians think.
Many believe that only you are a real player in Europe. A single word from you can move markets. Is not that too much power in the hands of a single individual?
This is completely exaggerated and not true. I interpret our order very closely. It's all about price stability me.
So close you can not see it in reality and yet can not see it as closely as well. The objective of price stability is isolated from all other parameters - economic growth, innovation, unemployment, welfare rates - can not be reached.
The ECB is always very careful with their statements have been. We stay within our mandate.
Jens Weidmann, the Bundesbank president, does not believe the way.
We do not have different views about our mandate.
Weidmann looks with the purchase of government bonds "significant problems" connected. He thinks it does not seem to be legal to buy many government bonds as the ECB plans to date.
We had several interesting conversations, but he does not say so to my knowledge. The purchase of government bonds is one of the tools in our toolbox, which we can use in fulfilling our mandate. But we must not injure the public finance prohibits the Treaty Article 123.
What the ECB is currently planning, but the comes very close.
No, that's not true. When the ECB decided to buy government bonds on the secondary market several years ago, the sole purpose of securing the monetary effect chain and was therefore clearly within the scope of our mandate. Those are the only government bonds, the ECB has been acquired.
How far is your house, the next big swing of government securities to buy?
The Governing Council of the ECB staff and the relevant committees of the Euro-Systems to meet technical preparations for any necessary additional measures.
How much money are we talking about?
Hard to say. The risk that we do not fulfill our mandate of price stability, at least higher than six months ago. Our mandate is - as I said - symmetrical. We must avoid excessively high or low inflation. The inflation rate averaged 0.3 percent in July 2014. In other words, since six months.
You want to expand the total assets of the ECB at least two to three trillion trillion. Right?
We are in technical preparations to change the scope, pace and composition of our measures the start of 2015, this should be necessary to respond to a too long period to low inflation. That is unanimity in the Governing Council.
The Euro becomes weaker and weaker. Have you promoted this currency expire and exports from Europe are cheaper?
The exchange rate is not a target of the ECB policy - even if the course is important for price stability and growth. The economic recovery is weaker and unemployment higher than expected a few months ago. This has contributed to a weak exchange rate. Markets expect a less accommodative monetary policy for the United States. This also contributes to a stronger dollar.
Although Germany currently has no interest and may have: Does Europe need not end but euro bonds, so common bonds that are guaranteed by all States?
They need confidence in the partner. Then ask now is the wrong question at the wrong time. Such a climate of trust has yet to emerge.
The ECB provides the economy with a lot of money. A good deal is expected to flow into the markets for stocks, real estate and art. Bubbles. Here is distinguished from the next crisis?
We understand such concerns. The ECB is here but very alert. Although we can not rule out this possibility for the future, we currently see no speculative bubbles. The volume of bank loans has increased not very strong. Before the crisis, the credit volume has grown too strong and too fast, which has contributed to the emergence of financial bubbles in some parts of the world. People have speculated on credit. That does not happen now.
Nikolaus von Bomhard, head of the largest reinsurance company Munich Re, believes it is too much liquidity in the market. The situation is much more serious than many people think. He says that the collateral damage of what is currently taking the central banks in Europe, are great.
Our monetary policy stance is determined by our medium-term assessment of price stability. It is very stimulating, and this is rightly so. Nevertheless, it may be that there is regional in scope and in submarkets are exaggerations, for example, the prices of houses in some areas have risen sharply. The reasons for this are regional, and they should be approached with the appropriate tools available regionally. The answer should be given by the new macroprudential instruments and not through the instruments of monetary policy.
Stock prices have risen enormously. The investors in their investment crisis seem to have discovered shares as an alternative. The course of the Alliance has doubled in three years, without the CEO or the products have changed.
Locally, there can be such developments in the real estate market. But I would not attribute this to our policy. Many companies have achieved real revenue and profit increases.
Overall, you can not be satisfied with the results. When a patient goes to the doctor and again increases the dose, but the desired effect does not occur, how does that well on the trust in the doctor?
It is not true that our monetary policy has no effect. The ECB has in its history still ensured stable prices. Take a look at the financial markets - before and after our program announcement! There confidence has returned. Besides, we have created from nothing banking union, with a single banking supervision by the ECB. This has also boosted confidence. But these improvements have not yet fully transmitted to the real economy.
We are at the beginning of a new year. What economic data expected in 2015?
The moderate recovery continues. It is fragile and uneven. Last but recorded 14 of 18 states growth, only two are in recession. Europe is gradually stronger. I am confident that the economy will grow in all countries of the euro zone next year.
And after that?
I'm cautiously optimistic. We believe that the combination of expansionary monetary policy and government reforms will bring back much of the lost confidence.
Is it still legitimate to speak of a Europe in "crisis"? Or already belongs to the history of the crisis?
It is rather a lengthy period of weakness as a crisis.
If the "black zero", the freedom of new debt in the state budget, a currently important goal? Sets Germany since the right priorities?
I'd rather not comment. The investments are low everywhere, even in Germany. Public investments are below the historical average. The International Monetary Fund believes that there is an investment gap of 0.7 percent of the gross domestic product. The ECB believes the number is lower.
So no warning of a policy based on fiscal consolidation?
Consolidation is the basis for sustainable growth. The excessive debt, Europe has reached a dead end.
You are under enormous pressure. Europe looks at you, the Heads of State and Government as well as citizens and entrepreneurs. Do you love such challenges, or more likely to suffer them?
For all the people who are responsible, it is important to be aware of their obligations aware. This is driving me through the day. This is also me the strength.
This is very Prussian for an Italian.
I believe duty is not a national characteristic of the Germans.
It is one of the duties of the ECB President to develop an exit strategy if it is different from what we have discussed here, if the euro zone should fall apart? It should at least be difficult for monetary policy to bridge the economic divergences in the long term, if governments do not find each other.
A breakup of the euro zone? That will not happen. Therefore, there is no plan B.
In politics, a Plan B is always necessary in case you develop things worse than planned, for example, says the longtime US Secretary of State Henry Kissinger. He advised in a Reuters interview the leaders in Europe to think in terms of alternatives.
Kissinger is not a politician, I do.
And it should stay that way?
(Laughs) I want to be a politician.
Not as President of Italy, your home country? The incumbent Giorgio Napolitano will resign soon.
My mandate as ECB President lasts until the year of 2019.
Mr. Draghi, thanks for the interview.