Lecture by Mario Draghi, President of the ECB,
at Sciences Po,
Paris, 25 March 2014

The euro area has been through a crisis of almost unprecedented drama and severity. Like the Great Depression of the 1930s, this will most likely provide rich material for economic historians for decades to come. It will be studied and analysed, its causes and consequences debated and revised. So it is interesting for us to imagine, when the dust has settled, where the various accounts of the euro area debt crisis will locate its turning point.

Some historians may locate it in individual policy measures taken during the crisis; others may place it in a future that we have not yet reached. In my view, the turning point has passed, and it came in the summer of 2012. What changed at that point was that crisis management shifted towards the development and execution of a consistent recovery strategy. It is this strategy that I am going to outline in my remarks today.

I will organise my remarks as follows. First, I will describe the initial development of the crisis, illustrating how policy choices made under the pressure of events and that were commendable by themselves, but that were sequenced in the wrong order, made dealing with the consequences of the debt overhang more difficult. This interacted with features of the euro area’s institutional structure to postpone the recovery.

Thereafter, I will describe how the right sequence of steps after June 2012, when the banking union project was first agreed, has put the euro area back on a trajectory towards recovery. The first step was ‘rebooting’ the financial system, which is a necessary condition of a sustained recovery, not least because it helps monetary policy to manage aggregate demand. But it is not a sufficient condition: policies of structural reform that lift the level of potential growth are an equally important part of the recovery strategy.

In describing this strategy, I am not only talking about the past, but also about the present and the future. The crisis is not over. To be successful, the recovery strategy is being, and must continue to be, executed with commitment and perseverance.

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  • In our view, heightened geopolitical risk and the prospect of U.S. and EU economic sanctions following Russia’s incorporation of Crimea could reduce the flow of potential investment, trigger rising capital outflows, and further weaken Russia’s already deteriorating economic performance.
  • We are therefore revising the outlook on our long-term sovereign credit ratings on Russia to negative from stable.
  • We are affirming our ‘BBB/A-2′ foreign currency and ‘BBB+/A-2′ local currency ratings on the Russian Federation.

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Frankfurt am Main, March 14, 2014

Moody’s Investors Service has today changed the outlook to stable from negative on the European Union’s (EU) Aaa rating. Concurrently, Moody’s has affirmed its Aaa/(P)Prime-1 ratings.

The key drivers of today’s outlook change are as follows:

  1. The improvement in the creditworthiness of the EU’s largest shareholders, which it depends on for additional support in high stress scenarios.
  2. Diminishing risks emanating from the euro area debt crisis, which alleviates pressure on asset quality.

The key drivers for today’s affirmation of the EU’s Aaa/(P)P-1 ratings are:

  1. The joint and several liability of member states with regard to their obligations to the EU.
  2. The EU’s multi-layer debt-service protection.
  3. The EU’s conservative budget management.

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Speech by Mario Draghi, President of the ECB,
at the presentation ceremony of the Schumpeter Award, Oesterreichische Nationalbank,
Vienna, 13 March 2014

 Ladies and Gentlemen,

Let me start by expressing how grateful I am, but also how humbled I feel, to speak before you today as the recipient of the Schumpeter Preis.

It would be tempting to see the honour that you are bestowing upon me today as a reward for a job well done. I prefer, however, to regard it as encouragement and inspiration to continue to pursue our task with the determination and single-mindedness that we have shown over the past few years.

After five years of crisis and uncertainty, 2012 and 2013 have been years of stabilisation for the euro area. They have seen a return of confidence in the prospects of our union.

2014 and 2015 will be a period of recovery. But that recovery remains conditional. It remains conditional on our pursuing the very policies that have brought about the return of confidence: growth-friendly fiscal consolidation; structural reforms aimed at enhancing investment and productivity; a committed monetary policy guarding against all threats to the integrity of our money – in particular, the risk of both too high and, currently more relevant, too low inflation.

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London, 07 March 2014

Moody’s Investors Service has today changed the outlook on Belgium’s Aa3 government bond rating to stable from negative. Concurrently, Moody’s has affirmed Belgium’s Aa3/P-1 ratings.

The key drivers of today’s outlook change are as follows:

  1. Diminished risks that Belgium’s government balance sheet will be affected by a further crystallisation of contingent liabilities from the banking sector.
  2. Moody’s expectation that fiscal consolidation will continue and support a reversal in government debt at around 100% of GDP in 2014-15.

Moody’s affirmation of Belgium’s Aa3 rating balances the following two considerations:

  1. The robustness of its economy with limited external imbalances backed by strong institutions; and
  2. Still high government debt, which is expected to diminish only gradually over the medium term.

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London, 07 March 2014

Moody’s Investors Service has today changed the outlook on the Netherlands’ Aaa government bond ratings to stable from negative. Concurrently, Moody’s has affirmed the Netherlands Aaa and Prime-1 debt ratings.

The key drivers for today’s outlook change are:

  1. Declining risks that the Netherlands’ government balance sheet will be affected by further collective support to other euro area countries, in particular to Italy (Baa2 stable) or Spain (Baa2 positive), along with reduced contagion risks within the wider euro area.
  2. Signs that the Netherlands’ own domestic vulnerabilities — specifically the weak growth outlook, high household indebtedness, and falling house prices — have peaked and are likely to evolve in a positive direction.
  3. The stabilisation of the Netherlands’ fiscal strength, as reflected in a debt-to-GDP ratio that Moody’s expects will peak in 2015.

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