Official Dinner of the Governing Council of the European Central Bank. Hall of Hercules at the Royal Palace, Naples, 1 October 2014

Transcription

1 Official Dinner of the Governing Council of the European Central Bank Hall of Hercules at the Royal Palace, Naples, 1 October 2014 Dear Minister Padoan, Dear Governor Visco, Excellencies, Ladies and Gentlemen, Let me first thank Ignazio and his team for being such wonderful hosts. As you know, we attach great importance to the external meetings of the Governing Council. They help to underpin the 1

2 cohesion of the Eurosystem, but also they give us an opportunity to take our message to all corners of the euro area. We are the central bank for the euro area; and we are therefore also the central bank for Italy, even if we usually meet in Frankfurt. It is not the first time that the ECB Governing Council has met in Italy. It is actually the third time. The first was a long time ago, when I was not even a central banker. That meeting, under the Presidency of Wim Duisenberg, took place in Rome in The second time was in 2009, while I was then Governor of Bank of Italy, and we hosted the ECB in Venice. 2

3 Being here in Naples today gives us a third opportunity to bring the ECB closer to another region of Italy. The demonstrations announced for tomorrow, close to where we will meet, remind us all of the difficulties we are facing to overcome the many facets of this crisis, which is being felt particularly acutely in some regions of Europe. And it underlines why explaining our policies to the citizens of the euro area remains so important. So let me thank also all of you for being here tonight and all the citizens of this wonderful city for their 3

4 hospitality, and for the patience they will have to show in coping with the inconveniences linked with the demonstrations tomorrow. We are here tonight in the Hall of Hercules, which seems aptly named for our current situation. As policymakers in Italy and in the euro area, it often feels like we face a Herculean task to revive growth and bring down unemployment. And just like Hercules confronting the hydra, it sometimes seems as though just as we defeat one challenge such as the sovereign debt crisis two new challenges spring up such as low inflation and a weak recovery. 4

5 But if I can extend the metaphor, it is also worth remembering how Hercules defeated the hydra: while he cut off its head, his nephew cauterised the neck. In other words, he simultaneously tackled the problem on the surface and at the root. And this is exactly what we need to do today in the euro area. We face both a cyclical challenge, which is too low demand, and a structural challenge, which is too low potential growth. And it is only by addressing each challenge at the same time that we can generate a sustained recovery; that we can ensure that no new heads spring up. This means each institution doing its job and sticking to its commitments. 5

6 For the ECB s part, we have a duty to deliver our most important commitment, which is to bring inflation back close to 2%. We will discuss tomorrow how we can continue to get closer to that aim. Yet I think we would all agree that monetary policy alone cannot do the job of restoring confidence and returning the euro area to growth. At this stage of the cycle the key to a sustained recovery is higher investment. Monetary policy can play a role here by lowering the cost of capital. But investment also depends on certainty over public finances. And lower interest rates will not encourage firms to borrow to invest if their returns are reduced by rising taxes, or eaten away by hidden costs linked 6

7 to unnecessary regulations. Thus, fiscal and structural policies must also do their part. The key issue here is really instilling confidence, which is built by abiding by the rules and by following through with promises. Only if firms feel confident in future public finance and future growth will they invest today. In this sense, confidence is what allows the positive medium-term effects of reforms to be brought forward into the present, and thus reduces their short-term cost. Let me clear: abiding by the rules is not a hindrance to reform. Provided countries have sufficiently sound 7

8 fiscal positions, the Pact contains the flexibility required to take into account the potential budgetary costs of structural reforms. But it is also important to underline that this interaction runs two ways. While fiscal policies can support structural reforms, structural reforms are essential to support fiscal policies. With a large public debt overhang in many euro area countries, it is only through structural reforms that raise potential growth, and hence debt sustainability, that we can create the space to use fiscal policy in the future. Many of the policies that I mentioned as relevant for the euro area are also and maybe especially relevant for Italy. 8

9 As I said, we all have to play our part if we are to sustainably exit this crisis. Thus, as Jean Monnet put it, we should not sit down on opposite sides of the table as adversaries. We should all sit down as partners on the same side of the table, with our challenges high unemployment, low growth and low inflation on the other side of the table. The European table is not a negotiating table where each country, each institution brings its own problems. It ought to be a family table where we all come together in the pursuit of a solution to our common problem. 9

10 Dear Pier Carlo, dear Ignazio, Excellencies, Ladies and Gentlemen, Within our sphere of responsibility, we will see at tomorrow s meeting of the Governing Council how we can contribute to stability, prosperity and a new confidence in the future. I look forward to tomorrow s meeting and thank you once again for your kind hospitality. 10