Wednesday, June 3, 2015

ECB raises 2015 inflation forecast, keeps growth outlook

    The European Central Bank (ECB), which earlier today maintained its key policy rates, revised upward is 2015 forecast for inflation but left its growth forecasts largely unchanged from March.
    The ECB also maintained its view that it would "maintain a steady monetary policy course, firmly implementing the Governing Council's monetary policy decisions," a clear signal that it will continue with its plan to purchase government bonds worth 60 billion euros a month until September or until inflation rises towards its target of just below 2.0 percent.
    In an update to its quarterly forecasts, ECB staff expects average inflation in the 19-nation area of 0.3 percent this year, up from the March forecast of 0.0 percent. But for 2016 and 2017 the inflation forecast was left unchanged at 1.5 percent and 1.8 percent, respectively, still below the ECB target.
    ECB President Mario Draghi said inflation had bottomed out at the beginning of the year, but should remain low in the months ahead before rising towards the end of the year. Helped by the expected economic recovery,  the lower euro exchange rate and the assumption of somewhat higher oil prices in the years ahead, inflation is then expected to pickup in 2016 and 2017.
    Consumer price inflation in May rose further to 0.3 percent from 0.0 percent in April, breaking a spell of deflation from December through March.
    As in April, Draghi said the risks surrounding the economic outlook for the euro had become more balanced due to the ECB's policy, the fall in oil prices and the lower euro. However, the risks still remain on the downside.
    For 2015 ECB staff expects Gross Domestic Product to expand by 1.5 percent, unchanged from its March forecast, then by 1.9 percent in 2016, also unchanged, and then by 2.0 percent in 2017, slightly down from a previous forecast of 2.1 percent.
    In the first quarter of this year, euro zone GDP rose by an annual 1.0 percent.

    The European Central Bank issued the following statement by its president, Mario Draghi:

"Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the Commission Vice-President, Mr Dombrovskis.
Based on our regular economic and monetary analyses, and in line with our forward guidance, we decided to keep the key ECB interest rates unchanged.
Regarding non-standard monetary policy measuresthe asset purchase programmes are proceeding well. As explained on previous occasions, our asset purchases of €60 billion per month are intended to run until the end of September 2016 and, in any case, until we see a sustained adjustment in the path of inflation that is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term. When carrying out its assessment, the Governing Council will follow its monetary policy strategy and concentrate on trends in inflation, looking through fluctuations in measured inflation in either direction if judged to be transient and to have no implication for the medium-term outlook for price stability.
Our monetary policy measures have contributed to a broad-based easing in financial conditions, a recovery in inflation expectations and more favourable borrowing conditions for firms and households. The effects of these measures are working their way through to the economy and are contributing to economic growth, a reduction in economic slack, and money and credit expansion. The full implementation of all our monetary policy measures will provide the necessary support to the euro area economy, lead to a sustained return of inflation rates towards levels below, but close to, 2% in the medium term, and underpin the firm anchoring of medium to long-term inflation expectations.
Let me now explain our assessment in greater detail, starting with the economic analysis. In the first quarter of 2015, real GDP in the euro area rose by 0.4%, quarter on quarter, after 0.3% in the last quarter of 2014. In recent quarters, domestic demand and, particularly, private consumption were the main drivers behind the ongoing recovery. The latest survey data to May remain consistent with a continuation of the modest growth trend in the second quarter. Looking ahead, we expect the economic recovery to broaden. Domestic demand should be further supported by our monetary policy measures and their favourable impact on financial conditions, as well as by the progress made with fiscal consolidation and structural reforms. Moreover, the low level of the price of oil should continue to support households’ real disposable income and corporate profitability and, therefore, private consumption and investment. Furthermore, demand for euro area exports should benefit from improvements in price competitiveness. However, economic growth in the euro area is likely to continue to be dampened by the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms.
This assessment is also broadly reflected in the June 2015 Eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP increasing by 1.5% in 2015, 1.9% in 2016 and 2.0% in 2017. Compared with the March 2015 ECB staff macroeconomic projections, the projections for real GDP growth over the projection horizon remain virtually unchanged.
While remaining on the downside, the risks surrounding the economic outlook for the euro area have become more balanced on account of our monetary policy decisions and oil price and exchange rate developments.
Inflation bottomed out at the beginning of the year. According to Eurostat’s flash estimate, euro area annual HICP inflation was 0.3% in May 2015, up from 0.0% in April and compared with -0.6% in January. On the basis of the information available and current oil futures prices, annual HICP inflation is expected to remain low in the months ahead and to rise towards the end of the year, also on account of base effects associated with the fall in oil prices in late 2014. Supported by the expected economic recovery, the impact of the lower euro exchange rate and the assumption embedded in oil futures markets of somewhat higher oil prices in the years ahead, inflation rates are expected to pick up further during 2016 and 2017.
This assessment is also broadly reflected in the June 2015 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 0.3% in 2015, 1.5% in 2016 and 1.8% in 2017. In comparison with the March 2015 ECB staff macroeconomic projections, the inflation projections have been revised upwards for 2015 and remain unchanged for 2016 and 2017.
The Governing Council will continue to monitor closely the risks to the outlook for price developments over the medium term. In this context, we will focus in particular on the pass-through of our monetary policy measures, as well as on geopolitical, exchange rate and energy price developments. We acknowledge that the staff projections are conditional on the full implementation of all our monetary policy measures in place. We also take into account that the degree of forecast uncertainty tends to increase with the length of the projection horizon.
Turning to the monetary analysis, recent data confirm the increase in underlying growth in broad money (M3). The annual growth rate of M3 increased to 5.3% in April 2015, up from 4.6% in March. Annual growth in M3 continues to be supported by its most liquid components, with the narrow monetary aggregate M1 growing at an annual rate of 10.5% in April.
Loan dynamics gradually improved further. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) was -0.1% in April, after -0.2% in March, continuing its gradual recovery from a trough of -3.2% in February 2014. Despite these improvements, the dynamics of loans to non-financial corporations remain subdued. They continue to reflect the lagged relationship with the business cycle, credit risk, credit supply factors, and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) increased further to 1.3% in April 2015, after 1.1% in March. The monetary policy measures we have put in place will support further improvements both in borrowing costs for firms and households and in credit flows across the euro area.
To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirms the need to maintain a steady monetary policy course, firmly implementing the Governing Council’s monetary policy decisions. The full implementation of all our monetary policy measures will provide the necessary support to the economic recovery in the euro area and lead to a sustained return of inflation rates towards levels below, but close to, 2% in the medium term.
Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance contributes to supporting economic activity. However, in order to reap the full benefits from our monetary policy measures, other policy areas must contribute decisively. Given continued high structural unemployment and low potential output growth in the euro area, the ongoing cyclical recovery should be supported by effective structural policies. In particular, in order to increase investment, boost job creation and raise productivity, both the implementation of product and labour market reforms and actions to improve the business environment for firms need to gain momentum in several countries. A swift and effective implementation of these reforms, in an environment of accommodative monetary policy, will not only lead to higher sustainable economic growth in the euro area but will also raise expectations of permanently higher incomes. Therefore, it will encourage both households to expand consumption and firms to increase investment today, thus reinforcing the current cyclical economic recovery. As concerns fiscal developments, reflecting mainly the cyclical recovery and the low level of interest rates, the aggregate euro area general government deficit ratio is projected to decline gradually from 2.1% of GDP this year to 1.5% in 2017. The general government debt ratio is projected to decline gradually from 91.5% of GDP this year to 88.4% in 2017. Fiscal policies should support the economic recovery while remaining in compliance with the Stability and Growth Pact. Full and consistent implementation of the Pact is key for confidence in our fiscal framework.
We are now at your disposal for questions."

    Later the ECB issued a transcript of President Mario Draghi's press conference:

Question: I was wondering if it would be possible for you to discuss the package agreed in Berlin on Monday night between yourself and the other Greek creditors, specifically how the ECB would react if Prime Minister Tsipras did not accept the package that’s now in the process of being tabled.
For my second question, in light of the delay in the publication of the remarks by Benoît Cœuré last month, would it be possible for you to comment on the pros and cons of private meetings between senior ECB officials and market participants? 
Draghi: On your first question, the answer is no, because basically, and this also holds for all the other possible questions on this issue, negotiations are proceeding at this point in time, so there is no point in me commenting on different aspects of these negotiations and different proposals. Both the Greek government and the institutions have now sets of proposals that they are confronting with each other. But let me make one general statement. The Governing Council of the ECB wants Greece to stay in the euro, but there should be a strong agreement. And a strong agreement is one that produces growth, that has social fairness, but that is also fiscally sustainable and addresses the remaining sources or factors of financial instability in the financial sector. So these will be the components of a strong agreement. 
On the other point, two considerations. The first is that we are certainly aware of the prerequisite and the rules that are contained in the Code of Ethics; the ethical code that governs the Executive Board Members’ appearances in different sites, on different occasions. They basically amount to saying that we should avoid any situation of conflict of interests and we should not divulge non-public information. What happened on that occasion was basically a mistake. The text of the speech was meant to go live immediately, and instead went live the morning after. So this is leading us now to review our rules, to revisit our rules, to make them more explicit, and we’ll shortly come out with a new set of rules as far as speaking engagements are concerned.
Question: You mentioned the issue of Greek debt sustainability, or alluded to it, and the importance of that. Is it perhaps appropriate that the ambition in relation to the primary surplus targets takes into account the recent downward developments in the Greek economy?
Secondly, under what circumstances might the ECB be prepared to extend the limit on T-bills’ acceptance as collateral for emergency liquidity?
Draghi: Well, on the second question, you know what the condition should be. There should be a credible perspective for a successful conclusion of the current review, which would imply a disbursement by the member countries. That would be the condition for the Governing Council to consider, because, in any event, there is no automaticity for considering a lifting of the T-bills’ thresholds. And we are not there.
On the first question, the answer is yes, definitely. The current downgraded perspectives, growth perspectives, of the Greek economy should be taken into account in determining what the appropriate budget surplus figures should be.
Question: Mr Draghi, there’s a slight change in language in the introductory statement this month, compared to your previous meeting, regarding growth. While this statement only says you expect the economic recovery to broaden, last time it said you expect it to broaden and strengthen. So does that mean that we are running out of steam already? 
And then a second question, again on Greece, even if you can’t give us details about the ongoing negotiations. Should there be no deal by next week, in light of the IMF’s okay for Greece to bundleits June repayments to the end of the month, would a non-payment this Friday then have any consequences to the haircut schedule that you apply on ELA? 
Draghi: Yes, there is a difference. Yes. On the first question, you quite rightly pointed out there is a difference. Let me say, the recovery is on track, exactly according to our projections. However, we had expected stronger figures, stronger than our projections originally, and at some point, some indicators were showing this. There has been some loss of momentum, modest I would say, mostly due to a weakening of the economies outside the euro area, emerging markets mostly. On the other hand, all survey indicators and other data show that domestic demand in the euro area remains strong, so we just wanted to point out this slight loss of momentum coming from global trade.
On the second point, I don’t want to comment on that. We will have to examine exactly what the conditions are. The option of bundling the payments has been used by one country in the 1970s, if I’m not mistaken, and we’ll see. 
Question: There was a recent rise in yields in a number of government bonds sectors in Europe, especially in Bunds. Could you give us your assessment of that? Was this a positive development that follows the recovery of the economy or was it an unjustified tightening of conditions? And is there a fear, or concern, in the Governing Council that QE may be adding to volatility in markets?
Draghi: Yes indeed, there was some reversal generally in financing conditions recently. There have been many explanations that have been given, one of which you hinted at, namely that there is an improvement, in the perspectives of growth. A second explanation is higher inflation expectations. A third explanation is actually a bunch of technical conditions present in the markets like, and here I’m going through them quickly, first, there have been one-directional investments into long-term maturities, and the turnaround has been quite abrupt. Second, there was strong supply pressure, in the sense that issuance had been quite significant, by various governments in the meantime. Third is that when shorter-dated German Bunds became eligible, previously they had not been, because of their negative yields, there was less need to buy longer-dated bonds, and that produced a steepening of the curve. The fourth technical condition is simply that volatility by itself generated further volatility and further selling, and a fifth is poor market liquidity because of the absence of certain significant investors during this period of time.
Now, it’s very difficult to distinguish between these three sets of factors, sets of conditions, so we won’t speculate exactly on what explanation is the most likely. But certainly one lesson is that we should get used to periods of higher volatility. At very low levels of interest rates, asset prices tend to show higher volatility, and in terms of the impact that this might have on our monetary policy stance, the Governing Council was unanimous in its assessment that we should look through these developments and maintain a steady monetary policy stance.
Question: Mr President, one question on that, that we have to get used to greater volatility. What are you planning on doing against that greater volatility? Are you planning on managing the yield curve going forward a bit more, or don’t you care about greater volatility?
Another question on greater volatility and the low rates. The IMF is warning that asset managers and insurers in the eurozone could actually get in trouble because of that policy, so are you preparing the next financial crisis or what would you do?
Draghi: The answer to both questions is no and nothing, but let me also qualify this. We won’t plan to change our monetary policy stance. That will stay. As you know, as I’ve said many times, we have a mandate, which is maintaining price stability based on the definition that we’ve discussed several times, and we plan to keep our course steady and unchanged, and if anything, if necessary, we’ll actually add to that.
On the second point, it’s quite right. A long period, a protracted period of very low interest rates, causes a series of problems. First of all, it may increase the financial stability risk, but also it causes problems for insurance companies and for other important financial market actors. Is this a good reason to change our monetary policy? The answer is no. If we were to undertake the wrong monetary policy to address the problems of these specific sectors, we actually would do them a disservice. We would undermine our price stability objective. We’d create in the end a more difficult situation for everybody. So what’s the answer? The answer is that when we see a financial stability risk, this should be addressed by the proper instruments, which are macroprudential instruments.
The second issue is typical of insurance companies. Clearly, the insurance companies try to respond to this situation in a variety of ways, which I don’t want to discuss, because some of them have to do with their business models, but certainly it’s quite clear that certain regulatory provisions make their task of diversifying their investments into higher yield and potentially more liquid investments more difficult. 
Question: Mr Draghi, can you tell us if you think the negotiations with the Greek government are going in the right direction, and if you think an agreement is close, how close can it be?
My second question is about the ECB’s mandate, which focused on price stability, but some economists say it should also include an objective of reducing unemployment. Can you tell us if this is something you can imagine , and if it’s something that could be good for the ECB? 
Draghi: On the first issue, I responded before. I can’t give you an update, a real-time report, on how the negotiations are going. Also because I’m here in Frankfurt, and the negotiations are not taking place here; but also because they are actually in a state of flux. But as I’ve said before, there is a general will and strong determination that in the end, an agreement will be found This agreement should be a strong agreement, and the components that I’ve listed before are the ones towards which, certainly the ECB is working, but I can say the same as far as the European Commission and the IMF are concerned, namely strong growth, social fairness, fiscal stability and addressing the financial stability concerns.
On the second point, yes we have a mandate. It’s one mandate, formulated as pursuing price stability, which the Governing Council, in 2003 clarified that, in the pursuit of price stability, it aims at a rate of inflation of below, but close to, 2% over the medium term. The monetary policy addresses the cyclical component of the weakness in the economy. So for example, now our monetary policy, in pursuing price stability, addresses also the cyclical component of the slack we have in the economy. So it does good to both things, price stability and unemployment.
But we should not forget that the structural component of our unemployment is high, and was high even before the crisis. If I’m not mistaken, it was on the border of 9%. Monetary policy cannot address the structural component of the weakness in the economy. It cannot address the reasons why potential growth is low. These issues should be addressed by structural policies. 
Question: Are you surprised at all at the pace with which inflation has climbed back into positive territory, given that it was minus 0.6% just four months ago, and in light of the fact that inflation has come back? Can you say anything about the potential two-sided nature of this September 2016 end date for QE that it could end sooner, or it could end later - but that it could end sooner if we still get positive surprises on inflation?
My second question, going back to Greece, is: there have been five years of these crisis meetings, eleventh-hour negotiations. There’s obviously a lot at stake for the global economy, especially with the IMF and the international community involved. How come the Europeans haven’t been able to get a better handle on how to handle this crisis, how to handle these negotiations, given that you’ve involved the international community in the financing of Greece’s rescue? 
Draghi: The answer to the first question is, no we have not been surprised. Inflation came out higher than market expectations but not higher than our expectations, and this in a sense has a quite important consequence. It actually strengthened the Governing Council in its decisions, basically in its determination and its conviction that it has taken the right decision with QE, with the size and the design of QE, but not only QE, but also the monetary policy measures that had been taken previously, in the previous months.
Now, the second part of your question is really how do we assess whether we have reached our objective of inflation or not, and I’ve said several times that we’re not going to be happy with a single data point on inflation, but we’ll have to look through the medium term and be convinced that the objective has been reached in a sustained fashion through time.
On the other point, it’s quite a complicated question to answer. Programmes have been designed and they’ve been agreed. Some of these programmes have been implemented; some other parts have not been implemented. So that’s the answer to your question. Why hasn’t the euro area, or more generally, Europe, been able to come up with a situation which could be considered as, I would say as normal, in this situation, as an ordinary situation? Well, as I said, programmes have been designed, have been agreed, and have been implemented only partly.
Question: But looking at the staff estimates and with inflation picking up, it seems that you’re already there where you wanted to be on prices, on inflation, so does the Governing Council at least discuss an exit strategy of unconventional policies?
Draghi: No. The answer is no. I mean, exit strategies are really a high-class problem, and we’re really far from that, so we’re not discussing anything about that. But we are not there, by the way. I’m just wondering what makes you think and say that we are there in terms of inflation. We have still a long way to go.
Question: Another question on Greece. The current haircuts that are applied to Greek debt relate to a period when it was foreseen that Greece would return to the market. How long do you think they are sustainable, and what would be the effect in this respect of a missed payment, to the IMF for example? 
Draghi: You’re perfectly right. We’ve been considering this now for a while. We’ll have to see again at the next meeting how things are, what is the state of negotiations, what is the state of markets. In other words, how the evolution, the current evolution, affects the quality of the Greek debt, and that’s the key decision we have to take. On the rest, I don’t want to speculate really. 
Question: I think you said a few minutes ago something about you're prepared to add to your monetary policy measures, if I heard you correctly. Does that mean that you would be willing to increase the size of your bond purchases. And if so, what would be the trigger to do that? What would you be looking for?
Second question: At the G7 finance ministers and central bankers meeting last week you heard a presentation from Robert Shiller who warned of a bubble in the stock market, and I wonder if that's a concern that's shared by the Governing Council or by you. 
Draghi: We assess that our present monetary policy stance is adequate to reach our objectives. In fact, the reaching of the objectives in terms of inflation and growth is predicated, is conditional, on the full implementation of the monetary policy stance as it has been designed, as it has been announced, as it has been implemented.
What I said before is that, if need be, if there were other factors which would, for example, create an unwanted tightening of monetary policy or, when we discuss growth, we said there were downside risks to growth and price stability, then we will have to review and reconsider the size, the timing, the design of the programme. So it's only to say that if needed we will add to that, but so far we frankly see no reason to do that.
On the second point, the answer is at the present time - by the way we are fully aware, as I said before, that low interest rates for a protracted period of time tend to generate financial stability risk - we monitor quite closely all these developments. And we don't see, so far, the emergence of these risks, even in one of the sectors that is most often quoted, like the housing market. We see selected local situations where one could actually think that price movements are wide. But there isn’t any real financial stability risk that we can see in that market or elsewhere.
I should also add leverage, private sector leverage, because what you look at is lots of things. You don't look only at price increases but you also want to see whether these increases in prices have been accompanied by increase in leverage. And we don't see that, at least in bank leverage. But having said that, I repeat what I said before. If there were to be financial stability risks in the stock market, for example, they would have to be addressed by the proper instruments, which is not a change in our monetary policy.
Question: Dutch pension funds are hurt by the low interest rate environment just like the asset managers we talked about. Do you think their regulator should allow them to diversify more as well?
Draghi: It would be difficult for me to actually identify a set of pension funds in a specific country. What is quite clear, and I had that remark in mind for insurance companies, is that certain parts of the regulatory framework make diversification more difficult. I make an example - it's not the only example by the way. But the treatment that securitisation receives in the present regulatory framework makes it difficult for companies to invest in assets that are potentially illiquid and make them liquid. That's one example. Securitisation is important to liquefy assets that are otherwise illiquid.
Question: Mr President, maybe to sum up the Greek issue in a broader perspective and as part of a strong agreement that could be reached in the next days, do you honestly see Greece in a position to have a viable economy in the future?
And second question: On the mistake you acknowledged regarding the disclosure of a speech delivered by an ECB [Board] member, the first reaction of the ECB was to remove the rule of sending embargo speeches. Do you find it fair or normal that the penalised people in this story are the journalists? 
Draghi: On the first question, yes, we see the Greek economy as a viable economy provided, like any other economy, the right policies are being undertaken. Things that are unsustainable in a certain situation, because the policies that are being undertaken are wrong, could become sustainable. And economies that are not viable under a certain set of policies could become viable under a different set. So the judgment is certainly the economy is viable, but it has to have the right set of policies. In other words, policies that certainly favour equity but also promote growth, or, if you want, that favour growth but also promote equity. As I said before, growth with social fairness and fiscal sustainability.
On the second point, let me only say that we are revisiting all our rules including this change that we have announced last week. So we'll discuss when our rules have been published, then we'll discuss them again. 
Question: I've got two questions concerning Greece, the first one with regard to the Greek payment schedule. If Greece defaults technically before an agreement can be reached, what do the ECB rules stipulate? Would you be able to just raise the haircut on Greek banks’ collateral, or would you have to stop ELA altogether, immediately? You said there must be a credible prospect of agreement, but I can't imagine that this is the only ECB rule with regard to ELA.
And the second question is do you think a Eurozone-wide guarantee on the Greek banking system would be a possible option if Greece would default? 
Draghi: I don't want to speculate on the likelihood of these events. But we do this regularly. We do assess how the developments in the markets affect the quality of our collateral, namely the quality of the Greek government bonds that have been posted as collateral. So were the conditions to change, we would certainly go through a series of things. Yes, we would have to revisit our previous decisions.
Question: No rules? 
Draghi: We are a rule-based institution, and we follow, in this sense, the rules exactly. We know the rules, for example, forbid monetary financing and our ELA is devised and designed to supply credit to the private sector, not to finance the government. There is collateral against these rules. By the way, the rules of collateral for ELA are different from the rules of collateral for the monetary policy instruments. So these rules are being applied and they are being regularly reassessed as developments in the financial markets unfold.
What was the second question, a guarantee?
Question: Would a Eurozone-wide agreement on the Greek banking system be a possible option if Greece defaulted? 
Draghi: No. I'm not privy to these developments. We haven’t discussed this as far as I know. But the more general issue is really, I think, we should focus now at this contingency in finding a strong agreement. Everything else would then follow. And I'm pretty sure it would follow easily. So all our energies should now be focused on finding an agreement that is strong, along the lines that I've illustrated before. 
Question: Mr President, in September the Greek SMP bonds held by the ECB will reach maturity. Does Greece have to fully pay them back itself or can this be arranged via the ESM, like some Greek officials are suggesting? 
Draghi: Again, I don't want to speculate on this. What the Greek leaders have said, and I'm taking them at their word, is that they, the bonds, will be timely and fully paid. And we stay with that statement now. 
Question: The President of the European Commission Mr Juncker and the Greek Prime Minister Mr Tsipras are meeting this evening in Brussels. Are you going to join them? Or is there another kind of parallel meeting where the ECB is going to take part? 
Draghi: The answer is no, we are not joining that meeting. 
Question: Mr President, to go to another issue. Given the fact that the decision of the European Court of Justice is coming closer regarding the OMT programme, what are your expectations for that decision? And to put it more specifically, do you expect any consequences for the design of your current QE programme?
Draghi: People in the world generally don't comment on pronouncements by the judiciary or by courts. So if we don't comment on pronouncements, you can imagine how difficult it is to form an expectation on that. However, we do have the opinion of the General Rapporteur, and that is the only element upon which one can form an expectation. And that wouldn’t suggest a redesign of the OMT programme, although it has other interesting suggestions for other functions that the ECB is currently performing. 
Question: Mr President, maybe you could elaborate again on your decision not to tighten the haircut rules for collateral used by Greek banks. The situation, the financial situation in Greece has deteriorated considerably since December when you took a lighter stance on this issue. So the whole thing looks like you're -- you said you are a rules-based institution and it looks like you're making political considerations; not willing to interfere in the ongoing political process. How would you comment on that?
Draghi: I would comment that it's not true. Simply said, we are not either interfering or in any way taking a stance with respect to the current negotiations. We are a rules-based institution. But you have to understand that there are two different sets of rules: one is for collateral posted against monetary policy instruments, and the other one is the collateral posted against ELA. 
You should remember that ELA is given by the national central bank. So from this viewpoint the set of rules is different. We will certainly continue discussing this. This difference is important, so much so, that the majority required to change Governing Council decisions about ELA is two-thirds, because when the ECB was created, the idea was that national central banks ought to retain a certain margin of discretion. So that is the situation. But we currently discuss and we assess and see whether financial market developments within that specific and different set of rules warrant a change in the collateral haircut.
Question: It's a couple of years ago now since we had the outburst of the European crisis. According to you, what is the main lesson?
Draghi: There are several main lessons that one can take, of course. But the first that comes to mind is that...well let me step back. The lessons that one draws from the crisis depend on what one views as the main factors, the main reasons for a crisis. One view is that the crisis originated in jurisdictions other than the European one. And it was imported. And so the issue is what was the main reason for the crisis in that jurisdiction. And here there are a variety of explanations, one of which is the too expansionary monetary policy. But another which has, in our view, and I think in most members’ of the Governing Council's view, more weight, is the fact that financial regulation in that jurisdiction was made much weaker in the early 2000's, basically lowering levels on leverage, lowering or cancelling indebtedness levels. The sub-prime crisis is mostly due to lack of supervision. 
So one lesson we learned is that we made our financial system stronger. We made stronger our banking system. And we increased more generally the resilience of the financial services industry. We don't know where the next crisis will come from, but at least we ought to be reasonably confident that we've done everything we could to make our financial services industry more robust, stronger and more resilient.
Question: Mr President you said earlier that you were not surprised that inflation was already going up a little bit, because it was according to your models. Can you tell us when your models are saying that it is below 2%, or close to? 
Draghi: We foresee 1.8% inflation in 2017. So the path is: this year we foresee inflation staying low in the months ahead and to rise towards the end of the year and further in 2016 reaching 1.5%, mostly because of base effects, namely oil prices should not continue to decline. And so if you compare the latest data of the last part of last year with the data that we will have at the end of this year, under the assumption that we would have no further declines, you have a base effect. But also there are other forces that will drive the inflation rate back to the objective, one of which is obviously the closing of the output gap: So the increase in domestic demand, the closing in the output gap and some sort of higher inflation rate domestically generated. 
Question: On Greece, on the elements of a strong deal, in your opinion, does it mean applying all reforms Greece earlier promised to do and now a form of debt relief?
Draghi: No. Strong means that it should be strong both in design and implementation. It should have the reforms that promote growth and have social fairness, and at the same time produce a macroeconomic framework that is fiscally sustainable. Some of the things that have been discussed in the course of the previous months are clearly fiscally unsustainable, so that is one part of the strength.
The second is implementation. Some of these reforms ought to be what is called in the negotiating language prior action. A strong programme has prior action, meaning certain things are done soon rather than late. And as I said before, the financing would come. Nobody, neither the institutions nor the Eurogroup members would conceive of a programme, would define a strong programme that's not financed adequately. So financing would certainly be there."


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