Posted Jun 22, 2014 by Martin Armstrong
Hello Mr Armstrong,
just want to share with you an interview today with Mr Draghi in the
Dutch newspaper ‘De Telegraaf’ (June 21st 2014). I had google translated
the text but made some modifications here and there. Hope you can still
Draghi wants more power to Brussels, that’s quite clear from the interview.
REPLY: The new push in Europe is to rush Federalization to “save” the euro, which is doomed anyway because of its fractured design. The real self-interest here is to save the jobs in Brussels. The birth of the Euro was accompanied with an oath that this would never be the federalization of Europe. Politicians simply see only their own power and we are rapidly going down the drain on the entire global economy that these people are destroying to retain their own personal power. There is no one-world government agenda here for that would require surrendering Brussels to some other entity. That is the way conspiracies really function by having people exaggerate a trend to something absurd and then just the federalization of Europe seems better that the world. They are all pursuing just their own self-interest and this is the global agenda of sharing info to hunt down loose change everywhere and the elimination of all cash to then force capital into banks that they can grab when they desire. Fortunately for them, 90% of the people are blind, and 3% are the real conspiracy crowd so that leave only about 7% that see the train coming down the track for what it is – a train.
Welcome the Federalization of Europe – one state – one union. Brussels can only see their failure is the lack of power, not because they do not know how to manage anything.
Mario Draghi rarely gives interviews. Hitherto he operated mainly large business newspapers and German media. This is his first interview with a Dutch newspaper.
Brussels should gain more power. That is the only way to ensure the future of the euro and leave the crisis finally behind us.
“My promise to save the euro was absolutely not a bluff ‘
“The low interest rate is a very understandable concern ‘
“The sovereignty must be” shared
“The economic recovery is weak and ‘vulnerable
That argues President Mario Draghi of the European Central Bank, in an exclusive interview with this newspaper. He will take clear from the statement of the VVD and some other politicians that the euro project is finished. The worst of the crisis has been contained but much aftercare is still needed. The great imbalance between the euro countries is caused by a lack of structural reforms in some countries. The next step is to bring structural reforms under a common discipline.
It is good that we have stricter fiscal rules and a banking union. But we’re not there yet, he says. “There is still need for a perfect monetary union to make.” Economic policy is not only a national issue, there should be more unified direction in which policies are needed. This means that Europe gets something to say about, for example, the Dutch mortgage.
“The budget commitments have shared sovereignty with the Member States. That should be the same with the labor market, competitiveness, bureaucracy and agreements on the internal market, “said Draghi. “You can give more power to the European Commission or the Member States in the European Council, or you can create new European bodies, such as a European budget authority. That’s not my call. That is up to the politicians. ”
Draghi calls for more structural reforms in some countries. He mentions no names, but referring to France and Italy, two large and important euro countries are hopelessly behind on the necessary reforms. Italy also sighs under a debt of 130 percent of the national income.
The ECB president understands the Dutch worry that they pay for the mistakes of southern Europe. “I see that conflict.” Yet he advocates solidarity. This means European interest rates are low to help the south. Ultimately, the North should benefit from that.
According to Draghi, the euro area is now on the right track. Low inflation is a major plus, purchasing power is enhanced by it. Downside is that the fear of deflation slows the economy and that debts are hardly less, because they are not “eaten” by inflation.
Mario Draghi is one of the key players in the euro crisis. The panic about the coin is gone, but his troubles are not, so experiences the President of the European Central Bank. Why isn’t the European economy picking up pace? And why do we in the North pay for the Soutch? “Dutch do have difficulty to pay for the Greeks but not they have to pay for the other Dutch.
When Mario Draghi took office in November 2011 as the new president of the European Central Bank, he stepped into the eye of the hurricane. The eurozone was in deep trouble. After financial misery in Greece, Portugal and Ireland also large countries like Spain and Italy were threatening to fall. The panic was large, politicians and investors.
From the first day as the Italian bank president had to take emergency measures. The worst unrest is over, but still Europe is struggling. Draghi remains seemingly calm among all the turmoil he has endured. Whether he himself was reluctant to take on this job “No, no, I did not hesitate. Things happen. ”
Draghi is 66 and has 5.5 years ahead of Frankfurt. He received The Telegraph for an exclusive interview on the 35th floor of the ECB tower. Soon he will move to a shiny new building, now he is still among the belongings of his predecessors Jean Claude Trichet and Wim Duisenberg. “Only the books are different, those are mine.”
He wants to join in the Dutch debate about the euro. He can’t do much with politicians who promise any cloud cuckoo land outside the European currency. “According to some, we must go back in time, thirty, forty years. I prefer to move forward. “And that means also build on the currency union, because it is not finished yet.
Dijsselbloem minister said recently that the crisis is over. What do you think?
“The recovery is going about nine months. However, it is weak and uneven across the eurozone. And it is fragile. Accidents could happen in the world economy that could change the circumstances. We could have accidents in financial markets or geopolitical risks. In addition, the unemployment rate has stabilized for about six months. It slowly goes down. Even in the crisis countries such as Portugal. But the level of unemployment is still very high. That is in itself a risk to the recovery, since it leads to lower consumer demand. ”
You define recovery anything above zero?
“No, but the economy is really improving although slowly. The business confidence and consumer confidence are pretty good lately. In the first quarter of this year, we saw slower growth. ”
Because of the turmoil in Iraq oil prices shoot up again. How risky is it?
“According to our mandate, we must strive for price stability. If inflation in the medium term is higher than the target of “close to but below 2%”, then we are concerned. But if it is much lower than we are also worried. We constantly ask ourselves why inflation is so low in the euro zone. Initially, this was due to lower prices of energy and food. Later those prices stabilized in dollars, but the euro rose in value and caused further disinflation. Higher oil prices will certainly affect inflation if we do not have yet a further appreciation of the euro. But for the countries that produce energy, such as the Netherlands, with its gas, it is also good news. ”
I hope winters are not as mild as they were because there were less gas sales in the Netherlands.
(Laughs) “Indeed. Is not it remarkable that this remarkable decline in economic activity in the Dutch economy in the first quarter was primarily a result of that? Many people do not realize how big the energy sector. It should be recognized that low inflation, while negative for growth and especially in the euro zone, supports disposable income in general. That’s one of the reasons why consumption in the euro area grows. ”
Compared to the U.S. economy in Europe is all rather meager.
“Our recovery is in an earlier stage than those in the United States, the United Kingdom and Japan. Therefore, the ECB has a series of policies decided on 5 June: lower interest rates, and banks a negative deposit rate, the introduction of bank support linked to credit, called TLTRO, and the preparation of a program for buying back of packaged business loans, asset-backed securities. In April I said in Amsterdam that all three situations could be that the ECB incite action. One was an unintended tightening of monetary policy that would be visible in the rise of short-term interest. This can lead to higher interest rates in the medium term and thereby affect economic growth and price stability. The second situation was a continuation of the deterioration of lending. We also look at that, because lending has been weak for a long time. The third was a deterioration in the outlook for price stability over the medium term. ”
And that happened all three at the same time?
“No, we responded especially to the first two. We have not seen deflation in the euro area in the sense that prices fall across the board. That households and businesses postpone spending and investments, waiting for lower prices. We see that the low inflation persists for a long time. If it takes too long, it makes adjustment in the crisis countries difficult. With low inflation, wages in these countries in absolute terms should really go down to improve their economic situation in terms of competition.
“Does their competitive position also plays a role in that debt pressures heavier at low inflation?
“Certainly. This is another consequence of low inflation. Reduce debt, which in many parts of the euro area is of great importance, is hampered by low inflation. ”
Private debt and public debt?
“Yes, public and private debt.”
Low interest rate is harmful for savers and pensions. What is your response to that concern?
“It is a very understandable concern. Many life insurance and pension plans promised a much higher value when they were agreed. ”
How long will interest rates remain low?
“We have extended the unlimited access of banks to liquidity until the end of 2016. That’s a signal. Our banking support program linked to lending to businesses is four years. This suggests that interest rates will remain low longer time. But then he will rise as the recovery strengthens. ”
When in the spring of 2015 U.S. will raise interest rates again, Europe will have to wait until the spring of 2017?
“We’ll see, but the extension to the end of 2016 is a signal. Moreover, the U.S. growth in the first quarter significantly revised downwards.
“Because of the damage to pension funds people spend less because they have to save extra.”
“We do not see that. There is no lack of spending in the countries most affected by low interest rates. I understand the concern about the low interest rates, but the other side is that it leads to more investment and more growth. And let’s think about what interest rate we are talking about exactly. These pension products invest in government bonds with long maturities. There are many reasons why the yields on government bonds are low that have nothing to do with the ECB. They are low because countries like the Netherlands and Germany, have become a safe haven. Before the crisis, life insurers invested in bonds of all countries, both “core countries” and “non-core countries. So the interest on these investments was higher because there were also weaker countries. After the crisis financial fragmentation started to unfold in which all insurers used bonds of their own countries to cover their obligations. This meant that insurers in the North had low yields. In the south, the return was a good thing. When restoring confidence in the euro zone, the northern countries will no longer be the only safe harbors. Then the money will again flow freely and restored confidence leads to higher interest rates in the Nordic countries. In addition, we need to determine monetary policy for the whole euro area. We can not look at just one interest. ”
Do you understand that people in the north have the feeling that they have to pay for the mistakes of the south?
“I see that conflict. Months ago I had to give a talk in the U.S. about the European currency union. I told then that several euro countries have large mutual imbalances, countries that are major creditors and major debtors. I said it was never the intention of the monetary union that we had permanent creditors and permanent debtors. For a balanced union that needs to change. Then an American gentleman from the audience said: “What you say is not true, because in the United States the state of Oklahoma has always been a debtor and New York always a creditor, but for us it does not matter. So why would it matter to you? ‘I think this is the crux of the matter. The debts of U.S. citizens are treated equally, no matter where they come from. ”
Because it is a political union.
“Indeed. Dutch do have difficulty to pay for the Greeks, but not that they have to pay other Dutch. Let’s continue about that ‘pay’. It is not so clear what some countries really have paid for other countries . In Greece, we have seen debt acquittal of debts held by the financial sector. Besides that there have been no defaults. The euro countries have spent much more on saving their own banks. ”
Can Greece ever repay you?
“If Greece continues with structural reforms, improving the budgetary deficit and improving competitiveness growth will increase. Then Greece can make it. The Greeks have to pay less than the Belgians in the next five years on interest and repayments. Many Greek debt has a low interest rate and a very long duration. ”
The ECB has taken many measures except quantitative easing, buying up bonds. What needs to happen before you decides to do this?
“That is the answer to the third scenario I mentioned in Amsterdam, a deterioration of inflation expectations over the medium term. We are now, however, focused on the measures we announced on June 5. ”
“Is it legally possible to buy government bonds? There is, after all, still a lawsuit.
“Within our mandate it is if it is aimed at price stability. We can not finance member states monetarily. ”
You were very pleased with the unanimous decision on June 5. Can unanimity also be reached on quantitative easing?
“It would be premature to speculate about that. Besides state bonds quantitative easing can also involve private sector borrowing. We’ll discuss when time comes. ”
“In announcing a new buyback program you said you would do anything to save the Euro with the words ‘whatever it takes’. Are you assuming that you don’t have to execute that plan anymore?”
(Smiles) “Unlike the earlier purchase of government bonds and a possible quantitative easing is that the OMT program focused on one specific risk:. The so-called tail risk of the breakup of the eurozone”
“Have you even been afraid that would happen?”
“In July 2012, there were more than enough reasons to worry. In that short speech in London, I said, a mistake many people make is that they underestimate how much political capital already invested in the euro. I was well aware of that. The political leaders were still fully committed to the euro just before the speech during the European summit where the banking union was created. ”
“OMT is a kind of nuclear bomb, a threat that will never be executed?”
“Markets reacted in such a way that it was not necessary to use the program. Interest rate differentials between southern euro countries and Germany fell so hard. No other monetary action could have achieved that. ”
“Were you surprised by the effect?”
“The magnitude of the effect? Certainly. We were all surprised. ”
Or were you relieved that you just had to promise it but not execute it?
“To be credible, we must be certain that we could use it. It was not a bluff. Absolutely not. ”
“The other side is that you have purchased so much time for politicians that they do not need to reform. Do you see that side too?”
“Yes and no. We have a mandate to pursue price stability. We are not responsible for the way politicians use that time. I do not want to mix the responsibility of the central bank with those of the government. But look at the extent to which governments have reformed since 2012. Then you have to admit that there has been significant progress. For example, in Spain. That country has its banking sector put in order and the labor reform. Or take Portugal and Ireland. And even in Greece, notable progress has been made. ”
“You have repeatedly said that the euro is an irreversible project. Understandable that you say that, but it’s not up to politicians to determine that?”
“Our mandate is to achieve price stability. We had more than enough evidence that the disintegration of the euro price stability was at risk and therefore our action was fully within our mandate. ”
“You saved the euro. Do you have thus taken a political decision?”
“No, no, certainly not. That is not politics. My verdict in July 2012 was aimed at price stability. Unjustified speculative expectations had become a self-fulfilling collapse of the euro and a vicious circle had developed over several months. This made for a very high level of interest rates. Those yields in turn were damaging to the real economy and the banking sector. The consequence was a new credit crisis and may be undermining our monetary policy. It is often criticized as overly political, but that was absolutely not. ”
“Much has been done to repair the holes in the currency union: tighter fiscal rules, a banking union. Is it done?”
“The banking union is a huge step forward for a more perfect union currency. The crisis shows that the economic policies of one country clearly has implications for other countries. Economic policy is not merely a matter of national competence. Fiscal policy has a certain common discipline. But the great imbalance between euro countries is caused by a lack of structural reforms in some countries. The next step is to also transform structural reforms into one common discipline.
“The current economic coordination in the euro zone is only a first step?”
“Just a first step indeed.”
“How does the second step look like?”
“That’s up to the politicians. In the budget agreements we have shared sovereignty with the Member States. That’s how it should work with the labor market, competitiveness, bureaucracy and agreements on the internal market. Sovereignty should be shared on a different level than the national level. Here I stop. Because now there are several options from which politicians can choose. You can give more power to the European Commission or to the Member States in the European Council or you can create new European bodies. That’s not my call.”
“The claim by some politicians that EMU is finished is not true?”
“No. We need more to create a perfect monetary union.”
“Should we have a budgetary authority on eurozone level, a budget that can be used to compensate for the poor countries?”
“That’s very political. If the existing rules were obeyed that would be enough. But it is clear that my predecessor Trichet made a strong case for a budgetary authority. ”
“To come back to your example of Oklahoma, don’t we just need that kind of financial solidarity in the euro area?”
“There is a difference. The U.S. is a country, the eurozone is not. In this complex structure, we must look for the best design in such a way that economic policy is seen as something of common interest. ”
“You understand people’s concerns about transferring authority? The European election can be seen as a reflection of that. Do you have an answer?”
“Are we so sure that it would have been better if we all still had our own coins? That we had been better off the last ten, fifteen years? In the seventies, eighties and nineties, we have seen many devaluations of currencies with high inflation as a result. We now have a great price stability, low inflation. This offers huge potential for growth and job creation. That something went wrong with the economic policies in some countries, it was not the fault of the euro. But let’s have that debate. It’s important enough. According to some, we must go back in time, thirty, forty years. I prefer to move forward. ”
“Do you understand that people see the euro as the cause of the crisis and unemployment?”
“The economic crisis and unemployment are the result of a very serious financial crisis, and partly of the wrong economic policy. The euro has perhaps masked it, but not caused it. We need the monetary union to escape from the crisis and create welfare and jobs again.
“That sounds great, but many EU summits on growth and jobs lead to nothing. How should that be?”
“It’s complicated. We should not accept the present, because at this moment we have no growth and insufficient jobs. On the other hand we should not dream of a past that will never return, and which is not at all clear that it would have been better. We need to work on the future, to realiz