WIREDGOV

The European Central Bank will take unconventional monetary measures if the economic situation in the euro area requires them, ECB President Mario Draghi reiterated to economic and monetary affairs MEPs on Monday. As the Banking Union takes shape, risks could migrate from banks to the non-banking sector, he warned. Also, speaking as chair of the Systemic Risk Board, he added that there is "a vast scope for more coordination of sanctions against banks between the US and Europe".

In his regular monetary dialogue with MEPs, Mr Draghi reiterated that the ECB's balance sheet could go up to the level of March 2012 if needed. Asked whether this was a target or an expectation, he said that "it is an expectation" and that "if not fulfilled, other measures might be taken".

Mr Draghi pointed out that the latest economic outlook “shows the growth momentum has weakened during the summer and that the forecast needed downward adjustment. This could dampen confidence and private investment in the euro area. Inflation in October is at 0.4% (the target is close to, but below 2%) and in the coming months this will probably be the same", he said. Mr Draghi also reiterated the need for fiscal consolidation and structural reforms to be put in place to improve the business environment.

No sub-prime in eurozone

Countering criticism that the recent launch of the programme to buy Assets Backed Securities (ABS) might turn the ECB into a “bad bank”, Mr Draghi said that this programme should not be compared to the American one: "We don't have sub-prime in Europe. The default rate in the US was 18%, whereas in Europe, it is 1.5%."

"Credible backstop"

Mr Draghi warned that the monetary measures taken so far will need time to materialise, but said “there are indications that the package is bringing benefits". Asked about further measures he thought necessary to get the euro zone economy back on track, he mentioned the need for to complete the Banking Union, so that the Single Resolution Mechanism (SRM) can function as a "credible backstop". He also warned that as the Banking Union takes shape, risks could migrate from the banks to the non-banking sector also known as “shadow banking”.

Furthermore, he said the capital markets union needs to take shape so as "to reduce fragmentation of national legislation and to improve lending to SMEs" and that there should be “a long-term commitment to sharing sovereignty in monetary policy, in the banking union and in the budgetary area”.

Letters to Ireland

Mr Draghi defended his predecessor, Jean Claude Trichet, against claims of putting pressure on Ireland to accept a bailout in 2010. He described the Irish request to the EU/IMF as "inevitable" and said "we should keep in mind that the bailout for Ireland was to the amount of 85% of Irish GDP and made up 25% of the total bailout fund. The correspondence was part of the overall policy dialogue and we saw it as our duty to the member states providing the liquidity to ask questions ".