Comments on Draghi NY Speech

Excerpts from the Speech by Mario Draghi, President of the ECB, Economic Club of New York, 4 December 2015:

There is no particular limit to how we can deploy any of our tools.

True- limits are political

And in this context it is important to recall that we operate under a clear framework of monetary dominance – we are ultimately driven by our mandate of maintaining price stability.


Indeed, it is inevitable that unconventional policy settings, ranging from negative interest rates to purchases of a broad range of assets, can have unintended consequences on allocation and distribution.

Yes, and as they function like taxes to remove euro net financial assets from the private sector, they can have the (presumably) unintended consequences of reducing aggregate demand, reducing ‘inflation’, and, likewise, fundamentally causing the euro to appreciate and further exacerbate the other unintended consequences.

In the selection of our policy tools, we aim to minimise the extent of such distortions, which is why, for instance, we have so far focused our asset purchases as much as possible in the most liquid and generic asset classes.

But there is no doubt that if we had to intensify the use of our instruments to ensure that we achieve our price stability mandate, we would.

Yes, however removing more euro removes more aggregate demand, is deflationary, and further supports the euro.

As the carpenter said about his piece of wood, ‘no matter how much i cut off it’s still too short’

There cannot be any limit to how far we are willing to deploy our instruments, within our mandate, and to achieve our mandate. And indeed the European Court of Justice has stated that the ECB must be allowed “broad discretion” when it “prepares and implements an open market operations programme”.

True, potentially they can perform the miracle of making the blind man lame, so to speak…

I can say therefore with confidence – and without any complacency – that we will secure the return of inflation to 2% without undue delay, because we are currently deploying tools that we believe will achieve this, and because we can, in any case, deploy our tools further if that proves necessary.

As the Bank of Japan, after 20 years of similar policy, and the Fed after 7 years of similar policy have continued to say with regard to meeting their inflation targets, after 6 years Draghi also repeats:

We just need a little more time to allow our monetary policy to kick in…