Closed Live – Mario Draghi’s ECB press conference

The European Central Bank, as expected, kept interest rates unchanged. Attention now turns to ECB President Mario Draghi’s press conference at 2.30pm CET, where the main topic is set to be what the eurozone central bank intends to do regarding its emergency liquidity assistance to Greece, which currently stands at €89bn.


Good afternoon. Here’s the text of the ECB’s statement published a few minutes ago. No surprises at all in the circumstances.

At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.05%, 0.30% and -0.20% respectively.

And here’s FT ECB correspondent Claire Jones’s initial report on the decision.


So, what’s ECB President Mario Draghi going to say at his press conference? Katie Martin has trawled some of the numerous analyst reports out this morning.

Here are a few of the highlights:

“Were it not for Greece, the ECB would be enjoying a gradual, domestically-driven, QE-boosted Eurozone recovery while keeping a cautiously optimistic tone,” says Frederik Ducrozet at Credit Agricole. “Instead, the focus will remain firmly on the ECB’s next move on Emergency Liquidity Assistance (for Greece). Mario Draghi will have little choice but to maintain a dovish tone, given the circumstances.”

Fellow French bank BNP Paribas reckons:

“We expect an increase in the threshold for ELA to Greek banks from EUR 89bn. We expect the policy meeting to be a net-net euro bearish event, with President Draghi likely to continue to signal the ECB intends to fully deliver on its QE program and is open to do more to counter any risks to the economic recovery.


Since it’s all about ELA, here’s a chart showing how the ECB has, over he last couple of months, steadily raised the limit on the Emergency Liquidity Assistance it is willing to extend to Greece.


Or, if you want to go back over a rather longer timeframe, here’s a chart showing the ECB’s use of ELA over the years:

https://twitter.com/katie_martin_fx/status/621626247186096128


The chances on the ECB raising the ELA limit have probably risen since eurozone finance ministers have agreed in principle to extend €7bn in bridging financing that Greece needs by next Monday to avoid defaulting on a bond repayment to the ECB.


The flip side of the last post is that German finance minister Wolfgang Schäuble, Germany’s hardline finance minister, said in a radio interview on Thursday that a temporary Grexit — a Greek exit from the eurozone — might still be the best way forward.

He said that was the only way Athens would secure a debt haircut since “a debt haircut is incompatible with membership of the currency union”.

However, Mr Schäuble added that he would present with “full conviction” the plan to Germany’s parliament to reopen negotiations on the new bailout. The Bundestag is expected to convene on Friday to debate the issue.


Laura Noonan, the FT’s investment banking correspondent, has a story about secret ECB aid for Bulgaria and Romania as part of a broader effort to convince foreign regulators not to pull the plug on the local subsidiaries of Greek banks.

Greece’s Piraeus, National Bank of Greece, Eurobank and Alpha Bank all have substantial assets in central and eastern Europe. If those assets were seized by local regulators, the parent banks would take an immediate capital hit, dealing a potentially terminal blow to Greece’s domestic financial system, which is already hanging by a thread as the country battles to agree a new rescue package with international creditors.

“The fear is that if someone goes first, and pulls the plug, everyone will follow,” said a person familiar with the situation.


Meanwhile in Athens the government of PM Alexis Tsipras has not fallen in the ewake of the large rebellion by MPs in his Syriza party last night but there’s no end to the protests in the capital, as Henry Foy, one of the FT correspondents in Athens has discovered:

https://twitter.com/HenryJFoy/status/621625056167350272


Katie Martin has the following markets update:

If you are finding the ‘on hold’ decisions from the ECB a little dull, we have bad news for you:
Goldman Sachs, for one, reckons interest rates are set to stay steady in the euro area until the third quarter of 2017.
The US Federal Reserve, in contrast, is overwhelmingly expected to start raising rates this year.
That’s a classic recipe for selling euros against the dollar, and the market is responding accordingly. The euro is down by 0.7 per cent against the dollar so far today, at 1.0870, its weakest point since May.
That in turn is helping eurozone stocks, particularly in export-heavy Germany. The Dax is up by 1.65 per cent today.


Mario Draghi has arrived and is sitting down


He begins by saying the governing council was also attended by a European Commission vice president.

The asset purchase programme continue to proceed smoothly – the 60bn programme intends to run until September 2016.

The information that has become available since early June “is broadly in line with our expectations”, ie the council is expecting a broadening of the eurozone’s economic recovery. The economy has stabilised since early June.


Money and credit expansion is starting to pick up, which suggests inflation should pick up towards 2 per cent in the medium term, Draghi adds.

If any factors would lead to an unwarranted tightening of monetary policy, the council would respond by using “all the instruments available in its mandate”.


Draghi so far: economic outlook is improving and inflation is on the up, but we are ready to step in if anything disappoints.


He’s now going into deeper analysis.

Eurozone growth was 0.4% in Q1 2015. Latest survey data consistent with moderate growth trend in Q2 and the recovery should broaden further.

The recent decline in oil prices should provide additional support for both household incomes and corporate profitability. And demand for eurozone exports should benefit from price competitiveness. But slowing emerging markets is weighing on the recovery in several sectors.

The downside risks have been contained as a result of monetary policy decisions.

Inflation bottomed at the bottom of the year and is now in positive territory.


Draghi is taking a bullish line on the fall of oil prices. They will boost disposable income. No fear of Japanification.


Inflation is expected to remain low for the next few months and then start to rise towards the end of the year, Draghi says.

They will pick up further in 2016 and 2017


Nine minutes in and no mention of Greece


Banks have recorded net easing of loans to businesses and size of loans has increased while fragmentation of loans in different eurozone countries has decreased.

Despite this, the size of loans remains “subdued”.

The annual growth rate of loans to households increased 1.4 per cent in June 2015.


There’s a need “to maintain a steady monetary course”, he says in summary, “to provide the necessary support to the economic recovery in the euro area” and help inflation pick up towards 2 per cent.

But he adds that “other policy areas much contribute decisively, particularly to stimulate investment, boost productivity and cut unemployment.

In short he’s telling governments to be more active.


First question is on Greece! Is a deal on short-term financing sufficient to raise ELA to Greek banks. Secondly is using terminology of a temporary Grexit useful?


Emoticon

Answer, “The decision to raise ELA today is symetircal to freeze it a few days ago.”.


“Things have changed now. We’ve had a series of news – the bridge financing package, the votes in the Greek parliament, which have restored the conditions for an increase in ELA.”


He adds that the ECB has acted within its mandate and will continue to do so. The ECB is assuming Greece will remain a member of the eurozone. Whether this is accurate is dependent on the actions of Greece and the other eurozone governments.


Draghi asked what happens if the ECB does not receive a loan repayment from Greece next week.


Draghi also asked if the ECB has let Greece down by freezing ELA, leading to the closure of the banks.


Markets update from Neil Dennis:

Little change in either euro-dollar or euro-sterling after Draghi finishes statement and begins taking questions.


Draghi re-reading the Eurogroup’s statement to answer first question relating to Greece’s repayment.


Emoticon

Draghi says ECB substantially accomodated Greek banks’ request for liquidity. €900m over one week.


Draghi says ECB takes critcisms very seriously and does not want to underplay the difficulty the governing council faced last week. But he makes one legal point: there has to be adequate and sufficient collateral for the ECB to provide ELA. Liquidity provision has never meant to be unlimited and unconditional.


Draghi launches a staunch defence of the ECB’s stance on ELA. Says ECB has provided huge amounts of liquidity to Greek lenders while the bank run in Greece was accelerating.


Eurosystem is now the largest depositor in Greece, Draghi says – ECB exposure larger than total amount of deposits in Greece.

The central bank has €130bn of exposure to Greece, against deposits of €120bn.


Criticisms of ECB over ELA unwarrented and unfounded, Draghi says.


ECB always acted on the assumption that Greece would stay part of the euro area. Those who wanted the ECB to cut off the ELA completely were thinking otherwise.


Third question also on Greece. What is Draghi’s assessment of the deal reached? Are debt haircuts needed? And what about the open discussion of Grexit – how will this affect the euro?

Draghi says he’s hesitating to comment on the programme as such. “We now have a mandate to negotiate”. The text that circulated was not generic, it was quite specific and contained an impressive list of policy measures.
Without commenting specificially the overall purpose of the document is to make sure Greece becomes a thriving economy in the eurozone. “It was not just a budget-based document.”
It has to snsure social fairness, fiscally sensible and address other problems. He says it does this.

He adds that it’s uncontroversial that debt relief is necessary. The question is what form should that relief take? And Draghi does not answer that question.

Draghi admits the union is imperfect and so its fragile and doesn’t deliver all the benefits it could if it were to be completed. The future now should see the size of steps on further integration.


Claire Jones saying that ELA was only raised by an incremental amount. Wonders if this will be enough. She also says she can’t understand how you can have a situation where there is not enough collateral but banks can still be judged solvent by the regulator.


Draghi saying raising ELA enough to satisfy immediate needs of Greek economy. If things improve, there will be a phase when the Bank of Greece and ECB will look at exactly the needs of the Greek economy and how they can be satisfied to ensure the ECB is always there to provide the Greek economy with enough liquidity avoiding there is a bank run again. Each time we have an improvement in the quality of Greek government paper we have an improvement in the capital position of the Greek banks. He says more than half of Greek banks’ equity is made of tax credits, so the quality of capital depends on the position of the state.



If you take headline capital numbers, Greek banks are solvent, Draghi says. But government paper has a big weight on the quality of the capital, so political developments matter.


Next question is whether Draghi should discuss the reversibility of the euro.

He says he’s not going to comment on politicians’ statements but act on the ECB’s mandate, which is to assume Greece is and will remain a member of the euro area.


Draghi asked when the Greek banks will reopen and why there is so little transparency on ELA.


Draghi making a joke there “I don’t doubt your investigative capacity”


Draghi adds it is up to the Greek government to raise capital controls. But he says one should do it in a way that avoids a bank run. Capital controls have deposited depositors, which to a large extent are small depositors.


Draghi says ELA was created to help individual banks. Making ELA data public could worsen the situation of that bank. Greece is a different set up as we are talking about countries’ banking system, so we are in fact revising our communication about ELA. There is no reason to keep secrecy in these cases.


Next question is on at which point the ECB has to stop assisting Greece – ie if the bonds were not repaid? And while it’s up to politicians to decide matters on Greece, will the ECB respect these decisions?

Draghi says We will be repaid as well as the IMF, so that conversation if off the table

I don’t want to speculate what the conditions are where a country will not be helped by the ECB. He says they are all about solvency and available collateral. It’s related to the creditworthiness of the issuer of the collateral.

So he reiterates that the ECB is a rules-based organisation.

On the second point, he says it’s hard to say whether the ECB respects the politicians but he stresses the ECB does restpect the treaty, which is where the institution’s mandate is enshrined.


Next question on whether there were changes to collateral rules on Greek ELA. Draghi says there was no decision today.


Draghi also asked if he was disappointed by lack of discussion over 5 president report on further EZ integration. Draghi says he is not disappointed as eurozone was busy with Greece. But “we have to act” he adds.


Draghi wants to see a completion of the banking union, including a deposit guarantee scheme. Important thing is to move.


More from Dutch PM Rutte – interesting.

https://twitter.com/OpenEurope/status/621667815196598272


Draghi also wants to see a capital market union as well as countries reflecting over a new roadmap to fiscal and political union.


Next question is whether ELA decision was unanimous and why he is so confident Greece will repay on Monday.

Draghi says the way the process works is that it’s not to object and that requires a two-thirds majority, and that was there. “So there’s never unanimity”.

On repayment, he says he knows there’s a financing concept that’s been elaborated by the European Commission and it’s on the way to being approved.


Markets update from Neil Dennis:

Euro remains at pre-presser level versus dollar – down 0.6 per cent at $1.0889. Sterling has climbed a little more, leaving euro down 0.4 per cent at €1.4335.


Draghi asked why he thinks the Greek programme will be implemented given that Tsipras does not believe in some of the measures and voters said “No” in the referendum last June.


The ECB’s Michael Steen is shocked there’s been a non-Greece question…

https://twitter.com/michaelsteen/status/621671368912932864


Draghi says he understands doubts and it is up to the Greek government to dispel them. But it is not up to the ECB to take decisions based on doubts.


Next question is also not on Greece – but on ECB monitoring of financial markets with regard to possible tightening of monetary conditions.

A supplementary is when Greece might be included in the QE programme.

Draghi says there isn’t any specific policy decision behind mentioning the ECB monitoring of markets. He continues that higher interest rates could happen in various circumstances but adds the medium-term outlook for price stability has not changed.

To be included in QE the issuer has to have a sufficiently high rating to be included in QE – ie a waiver is needed if it’s below investment grade. To get a waiver it has to be under a programme and there has to be credible compliance with the programme.
Second issue is how much of each country’s bonds can be bought by the ECB. So if Greece repays its bond on July 20 there would be some room for QE in Greece. The third requirement is that bonds can’t be bought during a review period. So QE is now being done for Cyprus. So it describes the roadmpa to make Greece eligible for QE.


Draghi asked whether he is worried that the new slide in oil prices will bring inflation back into negative territory. Also asked whether there will be front-loaded asset purchases.


Draghi says he thinks ECB has avoided second-round effects from the slide in oil prices. The ECB’s monetary policy will continue to avoid that. Draghi says there will be frontloading, as markets work less in August.


Here’s some reaction to the ELA increase from Frederik Ducrozet at
Crédit Agricole

Today’s decision by the ECB to increase the ELA cap, even modestly, was a nice surprise in terms of timing at least suggesting that the ECB remains willing to do “just as much as it takes” to support Greek banks.

Near-term, the ECB is likely to carefully calibrate further increases in ELA (as well as potential loosening in collateral haircuts), starting next week and conditional on further progress in terms of bridge financing, programme implementation and prospects for bank recapitalisation, in order to first help Greek banks re-open under capital controls.


Stefan Wagstyl reports from Berlin that Wolfgang Schäublehas told German MPs that bridge financing for Greece has been secure. Some €7bn willl come from the EFSM, with loss-protection guarantees put in place to safeguard the non-eurozone states, including the UK.
The profits on Greek bonds held by the ECB will be used as security.


The press conference has now finished. The headlines clearly the increase in the ELA limit for Greece by €900m and Draghi’s insistence that the ECB will continue to assume Greece is and will be a member of the eurozone.
There’s also the possibility that Greece could become eligible for QE if it repays its €3.5bn loan to the ECB on Monday.


We’re going to wrap up now. Greece appears to have been given both the means to repay its debts due on Monday to the IMF and ECB and some more breathing space for its banks.
The ball is now in the Bundestag’s court to approve the bailout deal and then up to the Greeks to implement the reforms.