ECB´s Draghi defends track record, calls for action on fiscal policy, reforms

Speaking at Deutsche Boerse´s New Year´s reception European Central Bank president Mario Draghi defended the efficacy of the ECB´s asset purchase programme, chastised critics of the bank´s policies and called for concerted action on fiscal policies, structural reforms and reducing the debt overhang.

Draghi said the recovery was proceeding, highlighting the fact that employment in the euro area had increased by 2m people since the trough reached by the economy in 2013.

Global demand had slowed as a result of "developments" in China and there was uncertainty in financial markets, leading economists to cut their forecasts for global growth.

Thus, the key question for policymakers was which of those two forces would gain the upper hand in 2016, he said.

Regarding the efficacy of the ECB´s asset purchase programme, he pointed to the 80 basis point reduction in bank lending rates since it was implemented in the middle of 2014. In those countries hit hardest by the crisis, the fall had been even more marked, at between 100 and 140 basis points.

To obtain the same result with conventional policy would have required a one-off cut to interest rates of 100 basis points, he said.

"Overall, it’s clear that the impact of the APP on confidence, credit and the economy has been substantial."

Furthermore, Draghi chastised his critics and how they did not ponder what the results of failing to act might be.

Should inflation in the Eurozone fall short of their forecasts by just one percentage point each year for the next five years that would boost the ratio of private debt by six percentage points, or about €700bn in additional debt for firms and households, the central banker said.

Neither were the ECB´s policies contributing to financial stability risks, the central banker argued.

"There are no warning signs of serious financial instability."

"More fundamentally, meeting our objective is about credibility. If a central bank sets an objective, it can’t just move the goalposts when it misses it. Confidence comes from every party fulfilling its mandate. And that’s what the ECB will do, as the Treaty demands of us."

"To turn the cyclical recovery into a structural recovery, however, others have to play their part."