FRANKFURT (Reuters) - Following are comments by European Central Bank President Mario Draghi at a news conference after the bank left its benchmark interest rate at 0.75 percent on Thursday.
“We will do whatever it takes within our mandate, within our mandate to have a single monetary policy in the euro area and to maintain price stability in the euro area and to preserve the euro. And we say that the euro is irreversible. So unfounded fears of reversibility are just what they are - unfounded fears. And we think this falls squarely within our mandate.”
“Well, it was not unanimous. It doesn’t mean that it was not unanimous. There was one dissenting view. (Asked if Germany dissented) We don’t disclose the details of our workings. It is up to you to guess.”
“I would not identify this (policy decision) with this caricature of being a sovereign cabal or an Italian thing. No, it is not. It is the Governing Council that, in its almost unanimous decision, has taken this measure.”
“Transactions will be focused on the shorter part of the yield curve and in particular on sovereign bonds with a maturity of between one and three years.”
“No ex-ante quantitative limits are set on the size of outright monetary transactions.”
“The Eurosystem intends to clarify in the legal act concerning outright monetary transactions, that it accepts the same, i.e. pari passu treatment as private or other creditors with respect to bonds issued by euro area countries and purchased by the Eurosystem through outright monetary transactions in accordance with the terms of such bonds.”
EFSF CONDITIONALITY FOR OMTs
“A necessary condition for outright monetary transactions is strict and effective conditionality attached to an appropriate European financial stability facility - European stability mechanism - so EFSF/ESM - program. Such programs can take the form of a full EFSF/ESM macroeconomic adjustment program or the precautionary program called enhanced conditions credit line, ECCL, provided that they include the possibility of primary market purchases by the EFSF and possibly later the ESM.”
“The involvement of the IMF shall be sought also for the design of country-specific conditionality and the monitoring of such programs.”
“The Governing Council will ... terminate them once their objectives are achieved or when there is a non-compliance with the macroeconomic adjustment or the precautionary program.”
COUNTRIES ELIGIBLE FOR OMTs
“(OMTs) will be considered for future cases of EFSF/ESM macroeconomic adjustment programs or precautionary programs as specified above. They may also be considered for member states currently under a macroeconomic adjustment program when they will be regaining bond market access.”
Bond buys linked to “strict and effective conditionally attached to” ... a European rescue program.
The ECB will consider “outright monetary transactions to the extent that they are warranted from a monetary perspective” and as long as conditionality is respected. Purchases will be focused on “the shorter part of the yield curve” especially 1-3 yrs.
“We are sure that we are acting within our mandate. We are not violating article 123” of the Lisbon treaty.
OMTs NEED EFSF/ESM FIRST
“Governments must stand ready to activate the EFSF/ESM in the bond market ... in line with the established guidelines. The adherence of governments to their commitments and the fulfillment by the EFSF/ESM of their role are necessary conditions for our outright transactions to be conducted and to be effective.”
“Under appropriate conditions, we will have a fully effective backstop to avoid distractive scenarios. Let me repeat what I said last month. We are strictly within our mandate to maintain price stability over the medium term. We act independently in determining monetary policy and the euro is irreversible.”
AIMS OF OMTs
“We aim to preserve the singleness of our monetary policy and to ensure the proper transmission of our policy stance to the real economy throughout the euro area. OMTs will enable us to address severe distortions in government bond markets, which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro.”
“We have changed ineligibility for central government assets. The Governing Council of the ECB decided to suspend the application of the minimum credit rating threshold in the collateral eligibility requirements for the purposes of the Eurosystem’s credit operations in the case of marketable debt instruments issued or guaranteed by the central government and credit claims granted to or guaranteed by the central government of countries that are eligible for outright monetary transactions or are under an EU/IMF program and comply with the attached conditionality as assessed by the Governing Council.”
“Economic growth in the euro area is expected to remain weak with the ongoing tensions in financial markets and heightened uncertainty weighing on confidence and sentiment. The renewed intensification of financial market tensions will have the potential to affect the balance of risks for both growth and inflation.”
“Owing to high energy prices and increases in indirect taxes in some euro area countries, inflation rates are expected to remain above 2% throughout 2012, to fall below that level again in the course of next year and to remain in line with price stability over the policy-relevant horizon.”
“Risks to the outlook for price developments continue to be broadly balanced over the medium term.”
“The risks surrounding the economic outlook for the euro area are assessed to be on the downside. They relate in particular to the tensions in several euro area financial markets and their potential spillover to the euro area real economy. These risks should be contained by effective action by all euro area policymakers.”
“Looking beyond the short term, we expect the euro area economy to recover only very gradually. The growth momentum is expected to remain dampened by the necessary process of balance sheet adjustment in the financial and non-financial sectors, by the existence of high unemployment and by an uneven global recovery.”
“In order to restore confidence, policymakers in the euro area need to push ahead with great determination with fiscal consolidation, structural reforms to enhance competitiveness and European institution building.”
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