ECB new President Draghi to EU Parliament: €uroArea can face the Global Crisis with a 3 steps Plan

Clearly and pedagogically replying to MEPs' questions in EU Parliament's Economic and Monetary Committee, the new ECB President, Mario Draghi, carefully but optimistically,  focused mainly into stressing that, despite the "Serious" risks at the present Global Crisis, €uroArea can succeed to face the challenge "if" it acts with "a well-coordinated, coherent and properly timed strategy", as it has already started to do, at least during the recent Months. While controversial UK-USA Rating Agencies should not be taken so seriously and would better face some Competition as French a.o. MEPs ask. And Greece's controversial PASOK Economic Plan on how to meet the overal Financial Targets agreed with the EU on October 2011 had better be reviewed, as he observed, after reiterating the general ESRB's call launched since late December 2011, as "EuroFora" had immediately reported (see relevant previous NewsReport).

After concluding, a smiling Draghi tried in vain to pose a while at least for an "EuroFora" Photo, but was immediately '"bombarded" by several more MEPs' questions up to EU Parliament's long corridors... 

In particular :

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UKUSA Rating Agencies lost Reputation
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Replying to a critical question by EPP Party representative, mainstream French MEP Gauzes, on the 3 UK-USA Rating Agencies, President Draghi observed from the outset that "all the Rating Agencies had a terrible Loss of Reputation, over the last (Global) Crisis,
Therefore, we should learn either to live without them, or to use them only at a lesser extend, among many other information sources. So, much less Mechanical reliance on them", he advised.

And the fact that we don't have Competition in the Rating Industry, is really an issue,  Draghi criticaly observed.

=> - "So, whatever we do to increase this Competition, is well done", ECB's new President stressed, speaking in Strasbourg the same Day that the Leader of French Governing Party UMP's MEPs, Jean-Pierre Audy, just reiterated his call for the EU to support the Creation of a European, Independent and professional Rating Agency, while also advancing the idea for the establishment of a New, World-wide Rating mecanism supported by the IMF and/or the UNO.

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Draghi : 3 steps Plan for €uroArea, (focused on Structural Reforms)
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But, the most interesting of all was Draghi's overall presentation on what shoud be €urozone's overall Action Plan, that he highlighted in reaction to the claim launched by Socialist MEP Bullmann éthat, "WIthout Investments, people have said that we'll slip in a kind of visious circle", as he had said...

 - "We have 3 sets of Actors ; If they all do and act consistently and effectively, then, we [EU) will reach Stabilisation", ECB's new President highlighted in reply :
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1st, National Governments. They have to put into place serious Fiscal Consolidation Plans.
What one sees accross Europe is Encouraging. Basically, Governments show a will and a Determination in pursuing Fiscal Determination in different (EU) Countries.

However, we shouldn't deny the Truth  : Fiscal Consolidation, if it's strong, as needed, this will have a "Short Term output Contractionary effects", as he noted.
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=> So, what can we do to Mitigate these efffects ?  An answer is that Economic Reform should be made also with Structural Reforms that increase Competitiveness, enhance Growth, and create Jobs.

Growth and Job creation in a area where Unemployment aproaches 10%; becomes more and more an objective to be pursued, together with consolidation of Budgets.

In fact, Growth and Stability are Complementary to eachother. Because there can't be any Sustainable Financial Stability without Growth", (as f.ex. the case of Greece also proved recently).

That's the 2nd part.
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+ The 3rd Actor, is a sort of "FireWall" , in the sovereign bonds' Market, ECB's new President added.

Because, we started this situation when Debts became big, but, during a certain period of Time, Markets are still "fragile" ("not only in Europe, but all over the World"), and, clearly, more than 5 Years ago, you practicaly didn't have but only some tiny spreads, since they were Not reflecting the Differend Risks.

But, then, after the Lehman brothers' crisis (in the USA), the perception of Risks Hightened, Investors started thinking that some had lied to them, Spreads started to grow dramatically, and, from Under-Shooting, (as previously), now they went towards Over-Shooting the differences in Interest Rates.

=> Therefore, there will be a Time when a "FireWall" would be really Useful, Draghi warned.

Because you'll have to avoid a moment when the Cost of Credit would be geared not to the Short-term, as we (ECB) do when we lend to Banks, but to the Alternative Investment, which is a Government Bond. So that the Cost of Credit would reflect the Higher level : i.e. the Government Bond, and not the Lowest Rate that we (ECB) ask the Banks to pay for that, he explained.
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=> As for the 500 Billion € move made recently by the ECB, (See 12/2011 "EuroFora"s NewsReport), it "is functioning", but we have to give it some Time yet. We (ECB) actually view it as being an Effective Measure, and we have several Proofs about it, he added.
Let me resume the Measures we took during the last 2 Months :

- We launched the unprecedented 3 Years Liquidity Facility, at 1% interest rate,

- We have halved (-50%) the Minimum Reserve requiry Ratio, from 2% tp 1%, so that it wil Free more than 100 Bilions € in collateral.

- We have broadened the Collateral Rules so that even Banks which are not Big enough, ca, actually access to the collateral, to the ReFinancing Facilities. (The reason being that the Traditional conceptions of collateral were only accessible to the very Big Banks).

So, we've done this for 2 main Reasons :

* 1st of all, we see that the key Refinancing Markets for Banks are Blocked.

=> So, we think that (with the December 29, 2011 Measure : See "EuroFora"s relevant NewsReport then), "we have avoided a Major Credit Crush", as there was an Emergency, (particularly with 200 Billions € Bonds coming in the first of theses two months). ...

* 2nd aim of that was to reach the target of Small-Medium Banks, who mainly fund SMEs, responsible for 60% to 70% of Jobs.

+ Some claim that the Money wasn't used because it was largely deposed back to the ECB. But, in fact, it's not the same Banks who took, and those who deposed Money back. So, meanwhile, the Money has circulated.

>>> From many points of view, we (ECB) are Satisfied by the efficiency of that Measure", Draghi concluded in reply to an EuroSceptic British Conservative MEP.
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Last but not least, questioned by MEP Lamberts on the situation of "Private Debts" in EU Countries, Draghi replied that there are All sorts of very Differend Situations, in this regard, going from those where the situations seems "out of control", up to EU "Countries which have the Smallest Private Debt in all the Western World", (i.e. a Record- High Private Lending Capacity), such as, notoriously, Italy and France, etc., which reportedly have among the Best and Strongest Private Savings in the World....

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New ECB President on "Greece" : Review the controversial October 2011 ("PASOK") Economic Plan on how to meet the Financial Deal agreed with the EU
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+ Finally, making just some "General" comments on Greece, in reply to a Question by MEP Chountis, (Left), ECB President started by observing that the October 2011 apraisal (of sustainability of the Greek Debt) had to be reviewed, "in view of the Fact that the Greek Program (which had been presented by the former PASOK Prime Minister Giorgos Papandreou, provoking unprecedented Popular Revolts and worse than expected Recession), both because of Lack of Growth, and of some non-implementation in part, is Not Delivering as expected", and this is part of the current Negotiations with the Private sector".

The controversy seems to focus on the controversial and inefficient, concrete Economic Measures and the practical way with which the G. Papandreoy "PASOK" Government had sought to meet the overall Financial Targets agreed with the EU, and not these targets in themselves, (Comp. the "Cannes Formula" suggested by "EuroFora" since the November 2011 Top meetings on the sidelines of the G20 Summit, and apparently endorsed by French President Sarkozy and the main opposition leader Samaras, etc).

Thus, a Realistic outcome would be an outcome which would guild, with a sufficient degree of realism, a Debt with a GDP Ratio of 120%, by 2020. This is a "realistic" outcome in the case of Greece, Draghi stressed in this regard, but without Time to explain in detail.

However, the overall estimation of ECB's President was that, in principle, a realistic outcome in the case of Greece was "possible". (Comp. "EuroFora"s latest NewsReport from Berlin+).