PIG TODAY-ECB's Draghi Speech

Speech by Mario Draghi, President of the ECB, at The ECB and Its Watchers XVIII Conference, Frankfurt am Main, 6 April 2017

Over the course of the crisis, the making of monetary policy has become progressively more complex. We have operated in an environment where the limits of our traditional instruments have been tested, and where new instruments have had to be introduced. This has required adaptation, not just by those of us who decide on it, but also by the Watchers who observe it and attempt to anticipate it.

Meetings such as this today have therefore taken on a special importance, since they represent an opportunity to communicate in both directions: for us to explain to you our assessment and our reaction function, and for you to provide your feedback.

So in that spirit, I would like to make three points today.

First, that our monetary policy is working and that it has been a key factor behind the resilience of the euro area economy over recent years. Second, that the recovery is progressing and may now be gaining momentum, though risks still remain tilted to the downside. Third, that despite these improvements, inflation dynamics continue to depend on the continuation of our current monetary policy stance – a stance that is determined by the interaction between all three main policy instruments: interest rates, asset purchases and forward guidance on both.

Monetary policy is working

For a large part of the crisis, the story of the euro area was one of abortive recoveries. The rebound that took place from 2009 to 2011 was derailed by the onset of the sovereign debt crisis. We then saw a nascent recovery beginning in mid-2013, but it also lost steam by the summer of 2014 as the external environment became more uncertain. The euro area economy, in other words, was consistently struggling to gain momentum and seemed highly vulnerable to new shocks.

This is not surprising given the severity of the crisis and the depth of the economic slump. Even today, the legacies of the financial crisis are still a drag on the recovery and the global environment remains uncertain. The balance of risks to the growth outlook remains tilted to the downside due to geo-political factors.

But things have also been clearly improving. Since mid-2014, the recovery has evolved from being fragile and uneven into a firming, broad-based upswing. Quarterly GDP growth has been consistently between 0.3% and 0.8%. Employment has grown by more than 4.5 million people. And this is despite the fact that we have encountered adverse shocks in that period, not least the slowdown in emerging market economies and renewed tensions in the euro area banking sector.

So what accounts for this improved resilience of the euro area economy? Certainly the recovery cannot be explained by “endogenous” or underlying growth forces, which were unusually weak in its early phase. Nor can several of the “exogenous” factors that have supported previous euro area recoveries provide an answer...

Read more: ecb.europa.eu