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Introductory statement to the press conference (with Q&A)
First, is this your do-whatever-it-takes moment, and did you expect to have one so quickly?
The second point is, by not cutting rates today it makes the ECB look a little out-of-step with the Fed and the Bank of England. Does that raise concerns about currency - subconscious or unintended - devaluations, competitive devaluations? Because the euro rallied a tiny bit after today's decision.
President Lagarde: We do not determine our monetary policy stance on the basis of currency variations. We are attentive to it, but this is not a determining factor, and the euro depreciates, appreciates, re-depreciates. I think the key issue is currently to face the fundamentals of the economy and to make sure that the liquidity risk doesn't materialise, that the credit continues to flow to the economy, and that we address the market excess sensitivities in order to restore some stability. That's what we are concerned about.
I remember saying when my predecessor and friend, President Draghi, left, and when I had interviews before the European Parliament, that I would hope that I would never have to do whatever it takes. What is good about our today's deliberations is that there was rallying support around the table to use all the tools available and to consider adjusting our instruments going forward in order to target those risks that we see as threats to stability in the euro area.
I don't have a claim to history for being whatever-it-takes number two. I really would like all of us to join forces, and I very much hope that the fiscal authorities will appreciate that we will only deal with the shock if we come together.
The market reaction to today's announcement seems to be pretty negative, and some have suggested the package compares poorly with the BoE. What would you say to them?
Secondly, you said today's decision was unanimous, but was a case made for a more expansionary package?
President Lagarde: As I've said,
the decision was unanimous and that unanimity I think carries a long way in demonstrating our resolve to deal with the issues.
Now, as to markets, first of all, it takes a little bit of time, generally, for decisions to be analysed, digested and appreciated. The fact that we are dealing with this full allotment liquidity facility at reduced rate compared with the current situation, the fact that we are putting in place a massive targeted long-term refinancing system that is available to all with a particular focus on SMEs, and with multipliers that are significant. If you look at the volume of lending that can be accessed, we're talking about 50% relative to the previous loan book, if you will; we're talking about an entry rate of -25 basis points, and we're talking about an ultimate interest rate based on the track record of the lending institution of -75 basis points. I'm not sure that you can actually so much rival with that at the moment, and by the way, comparisons are odious.
I have one question concerning bank lending. The ECB can provide cheap money, but the most important problem at the moment might be that banks are more reluctant to pass on credit because of the risks. Is it necessary to have some form of national or maybe European guarantee schemes to ensure that?
You've mentioned that there will probably be a lot of debt issuance in the future. At the moment certain countries are hit especially hard, like Italy. What can the ECB do if the spread for government bonds increase? Would it be an option to activate, for example, the OMT programme, or could there be other possibilities to help certain countries?
President Lagarde: On the guarantee scheme, I think I was very explicit in the introductory statement on that, but I'm happy to restate it. We are making available to all enterprises, with a focus on SMEs, massive refinancing means at very preferential rates, and in significant amounts. To encourage banks to actually use that facility we believe, and we have put in the introductory statement, that guarantee schemes would very much be in order. So in other words, it's a guarantee that is put together by the state, or an agency of the state, or a European agency in order to support all a part of the risk that is actually taken by the bank in extending lending facility to an enterprise, notably, in a sector which is particularly exposed. I mean, that is how we believe that the financing we're putting in place will be most efficient. Now, whether that is conducted at the national level or at the European level is for the policymakers to decide. What matters to us is that it is in place as rapidly as is possible. Some countries have already taken steps or are exploring steps in that direction. I would certainly, for the efforts that we are undertaking, I would certainly hope that they do that promptly in order to make sure that credit continues to flow to the economy, particularly the SMEs that are vulnerable in the present circumstances. So that was my point number one.
My point number two has to do with more debt issuance coming down the road depending on the fiscal expansion that will be determined by policymakers. Well, we will be there, as I said earlier on, using full flexibility, but
we are not here to close spreads[1]. This is not the function or the mission of the ECB. There are other tools for that, and there are other actors to actually deal with those issues.
EDIT:
The ECB even took the unprecedented step of editing the official transcript of the press conference to amend it with her comments to CNBC.
[1][Statement in CNBC interview after press conference:] I am fully committed to avoid any fragmentation in a difficult moment for the euro area. High spreads due to the coronavirus impair the transmission of monetary policy. We will use the flexibility embedded in the asset purchase programme, including within the public sector purchase programme. The package approved today can be used flexibly to avoid dislocations in bond markets, and we are ready to use the necessary determination and strength.