Introductory remarks and Q&A with Mario Draghi, President of the ECB, Frankfurt, 11 April 2018This document presents the transcript of the introduction and the Q&A with the President for the Generation €uro Students’ Award that took place on 11 April 2018 at 13:00.IntroductionLadies and gentlemen, and especially dear students,First of all, let me express congratulations to all the students here for reaching this stage of the Generation €uro Students’ Award competition. It’s an incredible achievement and you should all be proud of yourselves. Bravo!This gathering is an important opportunity for us to continue our dialogue with you. You are the winners of our euro area-wide competition on monetary policy, which is now in its seventh year. The ECB also organises other initiatives to engage
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Introductory remarks and Q&A with Mario Draghi, President of the ECB, Frankfurt, 11 April 2018
This document presents the transcript of the introduction and the Q&A with the President for the Generation €uro Students’ Award that took place on 11 April 2018 at 13:00.
Ladies and gentlemen, and especially dear students,
First of all, let me express congratulations to all the students here for reaching this stage of the Generation €uro Students’ Award competition. It’s an incredible achievement and you should all be proud of yourselves. Bravo!
This gathering is an important opportunity for us to continue our dialogue with you. You are the winners of our euro area-wide competition on monetary policy, which is now in its seventh year. The ECB also organises other initiatives to engage with young people. We have the ECB Youth Dialogues and competitions such as the Euro Video Challenge and the young economists’ session at the Sintra conference. Sintra is a conference that we do annually on a variety of themes around monetary policy and macroeconomics.
So far, my impression is that it has been a success, but of course I am biased. I am also aware that my colleagues from the national banks organise events and dialogues with students and schools at national level.
All this basically tells you one thing: you are very important because you are our future. You are Europe’s future and that’s why the ECB and the national central banks really give you a lot of attention and get a lot from you.
I trust that in taking part in the competition you have been able to find out more about what we do at the ECB, why we do it, and how our monetary policy works. It seems obvious that you should know what we do at the ECB or what people do in their national central banks. But as a matter of fact, if you do polls, you would be surprised by the amount of confusion that people have. For example, lots of people, about one-third, think that central banks are like other banks, that they are by and large not very different from what other banks do. Now, you will be the selected category that will know that the ECB is a central bank and that central banks are different from banks.
And even more importantly, through this exercise, you actually got to have, at a very young age, a European perspective. You understood what is still really missing from lots of people, who still think in terms of national borders. It is very important, of course, but it is not the only reality that we are living through. In fact, the European perspective becomes much more important as time passes. Why is that? Well, because there are many challenges that are in fact supranational by their very nature. That is to say, you can’t really respond to these challenges, and you can’t really address the problems at national level if they are supranational. Just let me give you an example: security is not something that people can actually address only at national level. Unfortunately, we have seen this very frequently through various terrorist actions.
Everything in economics now is basically global. So it’s even beyond being only European. It’s actually all over the place. The more we integrate, the better we’ll be placed to address economic issues of this nature. Think about defence. Does it make sense today saying that countries are able to defend themselves against global challenges? Well, less and less. Think about another challenge: migration. Migration is not a problem of one country. It’s a problem, a challenge and an opportunity for a group of countries. In this case, the European and eurozone countries are certainly called to respond to this challenge. All this means that having a European perspective has become essential to understand today’s problems and the possible solutions. The key question that you will be asked more and more in the future is “What can we achieve together?”
We count on you to embark on this long journey: we invite you to be our ambassadors, to continue the conversation on Europe in your schools and cities, with your relatives and friends. You will have an important role to play in tomorrow’s Europe, but that role, that responsibility, starts today. You give us not only hope for a better future, but you also inspire us to continue our work. We should be the ones to be thankful to you.
Finally, let me express a special “thank you” to the teachers here for making this event happen, and for the wonderful guidance and support you have given to your students. Let me also add a “thank you” to some people who are not here, who are your families, for the support they must have given to you to be able to reach such an achievement today. You are very lucky to be so well taught – even if you might not have realised it; or even if your teachers might not be aware of how much good they have given to you; or even if your families are not aware of how much good they do to their children. It just comes with being a father or a mother.
So again, let me congratulate you and congratulate everyone who has been involved in your success.
Let’s now open our discussion. Thank you.
Graeff: First of all, welcome! Just like last year, we are going to have a question and answer session. We received quite a few questions from all of you in the various schools and selected a few. There was lots of creativity in the questions and also lots of creativity overall.
So let me just kick-start this and move on to the questions. I would like to invite Mykola Murashko of the ECB’s winning team from St. George’s International School in Luxembourg to ask the first question.
How do you think the EU will evolve in the next five, ten and fifty years?
Draghi: It’s not easy to answer this question because I have no crystal ball. But what I can say is in which areas and how Europe should evolve in the coming years, to be able to address the problems that I just mentioned. And the answer is just one: it’s just more integration.
Because the challenges, as I said before, are to an increasing degree supranational. For example, take another challenge that I did not mention. Take the climate challenge. It doesn’t make any sense to say that we will be addressing this problem at national level. So much so that we had a world agreement, the Paris Agreement, about global climate challenge. And the same thing holds at a lower level, at continental level now, for many of the problems we are having today.
Now, this time is a kind of strange time to actually respond to your question. Because we are passing through a difficult time to decide that we have to have more integration in order to cope with the challenges. In other words, we know at a rational level that we need to be more integrated to cope with the challenges that I listed before. At the same time, at an emotional level and even to some extent, since politics is made by emotions too, at a political level, this is a difficult time. And it’s a difficult time because this continent has just come out of what is arguably the most serious crisis since the 1930s. And for some of the countries of the eurozone, as a matter of fact, this crisis has been worse than the one of the 1930s. And when a crisis of this nature happens, there is a sort of inherent tendency to be inward-looking, to retreat within national borders - as if such a retreat would be the answer. But that is what happens. So you see different reactions, for example, to migration issues. You see different reactions even across Member States of the eurozone; different reactions to security challenges. And in some of the political parties around we have seen an increased, though not yet triumphant, rise of the so-called populist/nationalist movements.
Now, should this cloud the way we view the future? The answer is no. Because there is nothing we can do about that: these challenges are supranational. And there is no way, no matter what our current emotions could be, that we can cope with these challenges at national level.
And now, more modestly, since you have a central banker speaking, what is needed here at a monetary level is to deepen our economic and monetary union, to fix the fragilities that have characterised the economic and monetary union and, in a sense, have contributed to a worsening of the economic crisis that we have just experienced.
Graeff: The next question comes from Lukas Lengsfeld from the Internatsschule Schloss Hansenberg in Germany.
Do you believe that the abolishment of cash in the near future is an achievable goal? If so, do you support such a notion?
Draghi: We don’t want to abolish cash. At least this part of the world likes cash, I mean everybody likes cash. But this part of the world especially likes cash, so we have no intention to abolish cash. Basically, we see what the citizens’ wishes are as the best way to carry out their transactions and payments and we take them into account. We continue to issue and print banknotes. We have kind of slowed down the production of the highest denomination €500 banknotes one year ago, but it didn’t stop. The production will stop in 2019 and it will be replaced by the €200 notes. I just want to show you that the halting of the production of the €500 note is not due to the fact that we don’t like cash. It is simply due to the fact that high denomination banknotes are mostly used by criminals and by all the people who want to store large amount of wealth and not be known for doing so. By and large, most countries have started moving along the same way.
Having said that, it is true that there have been very interesting developments in new technologies. You heard about bitcoins, about distributed ledger technology (DLT). And we are looking at these developments. We have to distinguish here: bitcoins are not coins but mainly assets. They are not safe and there is not a central bank backing bitcoins. On the other hand, a normal currency has a central bank backing its production and its value. So, a euro is a euro today and it is going to be a euro tomorrow. A bitcoin has a certain value today and a different value tomorrow.
Having said that, there are very interesting potential developments that central banks may want to look into and understand. All central banks, at least the largest central banks, are looking especially at DLT. We also have joint programmes with the Bank of Japan and national central banks in the eurozone are looking on their own and there are groups coordinating. Basically, what is happening is the same as in any new development: people are trying to put together their forces, their strengths and see whether progress is advisable and if so, in which direction.
Graeff: I would now like to ask Claudia López from the IES Camilo José Cela in Spain to ask the next question.
Good morning, we would like to know if you enjoy what you do for a living and if it is very stressful to govern the ECB?
Draghi: Well, I certainly enjoy what I do. No doubt about that.
Obviously, what happens is that the decisions that we take, and I have to say “we”, because I only chair the Governing Council. The Governing Council is a group of governors of the central banks of the eurozone. So what we do has a big impact, even words, even adjectives, I wouldn’t go so far as saying commas, but we have a big impact on citizens' welfare and well-being. To understand this big impact means to have a big responsibility. So, it is enjoyment with a big sense of responsibility. And frankly, I have been very lucky to actually work with this group of colleagues in the Governing Council who are excellent and competent professionals. And part of the enjoyment comes from the fact of working with this group of people of such high quality.
Graeff: Let’s continue with the next question from Darragh Moran from Gonzaga College Dublin in Ireland.
Do you find it concerning that inflation rates remain subdued despite the continued use of several non-standard monetary policies and low interest rates?
Draghi: As a matter of fact, I addressed this issue in a speech I gave in Dublin, not long ago, and it is a big question. Any time we can remember, when we had recessions, we looked at how the labour market would work, how the economy would work and then we would look at how wages would respond and then at how inflation would respond to increasing wages. And I would say that almost all the episodes that we have looked at in the past would show that wages and prices would respond to the improvements in the economy much faster than they did this time. Perhaps we had a very severe and long crisis and this has affected these mechanisms of response. Basically, now we have seen a significant improvement in the economy and a significant improvement in the labour market. We are talking about almost four million jobs created in the last three and a half years, which is more than at any time.
And still we don’t see much of an increase in nominal wages. And we are asking ourselves for almost two years “Why is it so slow in responding?” Some of it has to do with the slack in the labour market. The amount of unemployed people in the labour market was bigger than what was measured at the time. Some of it has to do with the fact that some of the jobs that have been created were not top-quality jobs, they are part-time, they are temporary, which means that people who are getting newly employed after perhaps a long time of unemployment are really not looking for higher wages immediately. They first look for job stability. Another reason was certainly that after so many years of low inflation, if not risks of deflation at some stretches of time when people started negotiating for higher wages, they looked backwards. They were looking basically at a history of prices that wouldn’t go up. Basically, they say they are not looking for higher wages immediately. There is a variety of reasons for this.
By the way, another important factor is so-called globalisation. The fact is that the new way of selling things, the electronic digital retail framework, in which we make most of our purchases, is one where we compare prices immediately. This has increased competition in the retail sector which has also created a downward pressure on prices, or at least a downward pressure on inflation rates. So, there is a variety of reasons.
However, the conclusion that we drew here at the ECB is that all these factors are not eternal; they are not permanent. At some point we know that nominal wages will respond and therefore, inflation rates will respond to the improvement in the economy which is in front of us. So, we are confident that inflation will converge to our objective, which, by the way, is an objective defined as an inflation rate close to but below 2%. So, we are confident that this is going to happen. And, in fact, it is already happening. We are moving towards our objective.
Graeff: I would now like to invite Elisabetta d’Attoli from Istituto Tecnico Economico "Einstein" in Italy to ask her question.
How important is youth awareness of economic events for the ECB? Why did you start the Generation €uro Students’ Award?
Draghi: I kind of touched on this in my introductory remarks. This event tells us a few things. First, it says you are very good because you won an important prize. Second, we want to communicate what we do, to you and to a broader public and to the broader public opinion. I also mentioned other events that both the ECB in Frankfurt and the national central banks in their respective countries organise along the same lines. Communication of what we do; communication of what we are in Europe today is for us of utmost importance. And third, it also gives us the possibility, which is also part of communication, of explaining what we do. If you look around you see a world which is basically crossed by lots of discussions and confrontations and sometimes anger as well. But if you ask yourself “Why?” Well, part of the answer is really confusion, misperception. It’s a lack of communication and a lack of explanation. We are trying to fill this void and I should be really careful here, we are trying to do our best as far as this is concerned but there is still so much to do about that.
Graeff: And one can always do more. We’ve got three more questions. I am a little bit conscious of time. The next one comes from Katia Sousa of the Lycée Hubert Clément in Luxembourg.
Why did you decide to start a career in the financial sector?
Draghi: Thank you. Looks like you are very interested in my personal life. You see, central bankers are not supposed to speak about themselves. It’s an unknown world: “yourself”. But basically, because of my upbringing, I was always interested in economic matters. Even when I was very young, I liked this sort of stuff. By the time I was 18, it was natural for me to go into economics and then from there I went to MIT for my PhD and from there I moved back to the Italian university where I would teach monetary economics, monetary theory and international. So, it was possibly the sorts of things I was introduced to at an early age. Certainly, the encouragement I got from my family. First, my parents. Second, from some key teachers I had in the course of my life which encouraged me to continue along this path. Some other key figures in the succession of things that by and large kept me in this line of activity. You know, you make these choices because you like certain things and because there are certain key figures in your life that help you stay in this line of thinking.
Graeff: We now have a question from Daniela Augusto from the Escola Secundária de Mem-Martins in Portugal.
What are the consequences that the new taxes on steel and aluminium importation applied by the United States and the recent events regarding Russia and the United Kingdom can have on the eurozone economy, and, obviously, on the ECB’s monetary policy?
Draghi: We discuss these issues nowadays quite frequently in the Governing Council when we ask ourselves: “What are the risks that we look at?” or “How will the eurozone grow in the future?” Things are OK now, but what could threaten the sense of finally having come out the big depression, the big recession? Now, it’s a time – and it’s the first time in a long time – that we can say that most of the risks are external. They are not internal. And we call them geopolitical risks. They have to do exactly with the sort of things you mentioned. This tariff development, Brexit, one country leaving the EU, what’s happening between Europe and Russia and what’s happening in the Middle East. So, there are many of these developments.
Specifically, as regards the effects so far of tariffs that have been imposed or been announced to be imposed, it seems that the direct effects are not big. But of course, we have to see how long these exchanges go on. We have seen only the first round. One country has put some tariffs, the other country responded. So, at the end the key issue is retaliation. How big will the response of countries be, one to another? And again there is a memory that is not really very comforting. When the Great Depression started in the 1930s, all countries, actually, at the very beginning of the crisis, reacted with protectionist measures, in other words, putting very high tariffs. World trade collapsed and made the depression even worse. I don’t think we are there, fortunately, and I hope we won’t get there because we learned a lot in the meantime. Hopefully, it is unlikely. But still we have to take that factor into account.
But there is another more subtle channel through which these tariffs or these trade exchanges can affect the economy. And I would say we have to be especially mindful of this channel, which is the confidence channel. In other words, if countries start to put tariffs on other countries’ exports, then, just put yourself in the shoes of an entrepreneur who has to decide about a big investment in that sector. Well, he will wait at the very least to see what is going to happen, which means less investment. This effect on confidence could be very important in the coming months. It’s something that we have to really look at.
Graeff: Finally I would like to invite Melker Lundberg from Ålands lyceum in Finland to ask the final question.
What is the most memorable economic event that happened during your time as President of the ECB?
Draghi: Well, fortunately you said an “economic event”. So, we can narrow it down a little. There hasn’t been a specific event, like when you make a big scientific discovery and you have your white apron and say “Wow, I found something”. I don’t think that in economics it works that way. So, you have key economic developments that stay in my memory more than others. Not events as such. One certainly was the sense of a looming crisis that was about to strike the eurozone. This was in 2010 and I would say even through 2011. And then the first steps to come out of the crisis. There was the creation of the Single Supervisory Mechanism (SSM); the banking union that was decided in June 2012 and the later developments of that year, including the Outright Monetary Transactions (OMT) that were decided by the Governing Council of the ECB, which basically told markets that they were wrong about going against the euro, that they were wrong thinking that the euro might collapse some day and that the euro was irreversible. And the answer to that point was a turning point for the business cycle in the eurozone. So, it’s more than an economic event. Basically, there are two sets of economic developments. One is what our leaders did at an institutional and political level and the other one was our response in front of the crisis, the ECB Governing Council’s response.
Graeff: Thank you very much, Mr President.