Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. Incoming information confirms that the moderate recovery of the euro area economy is proceeding in line with our previous assessment. At the same time, recent information remains consistent with our expectation of a prolonged period of low inflation followed by a gradual upward movement in HICP inflation rates. The signals from the monetary analysis confirm the picture of subdued underlying price pressures in the euro area over the medium term. Inflation expectations for the euro area over the medium to long term continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2%.
Looking ahead, we will monitor developments very closely and will consider all instruments available to us. We are resolute in our determination to maintain a high degree of monetary accommodation and to act swiftly if required. Hence, we do not exclude further monetary policy easing and we firmly reiterate that we continue to expect the key ECB interest rates to remain at present or lower levels for an extended period of time. This expectation is based on an overall subdued outlook for inflation extending into the medium term, given the broad-based weakness of the economy, the high degree of unutilised capacity and subdued money and credit creation. At the same time, we are closely following developments on money markets. The Governing Council is unanimous in its commitment to using also unconventional instruments within its mandate in order to cope effectively with risks of a too prolonged period of low inflation.
Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP in the euro area rose by 0.2%, quarter on quarter, in the last quarter of 2013, after 0.1% and 0.3% in the previous two quarters respectively. Survey data that encompass the first quarter of this year are consistent with continued moderate growth, confirming previous expectations that the ongoing recovery is increasingly supported by firmer domestic demand. Looking ahead, some further improvement in domestic demand should materialise, supported by the accommodative monetary policy stance, ongoing improvements in financing conditions working their way through to the real economy, and the progress made in fiscal consolidation and structural reforms. In addition, real incomes are supported by moderate price developments, in particular lower energy prices. Economic activity is also expected to benefit from a gradual strengthening of demand for euro area exports. At the same time, although labour markets have shown the first signs of improvement, unemployment in the euro area remains high and, overall, unutilised capacity is sizeable. Moreover, the necessary balance sheet adjustments in the public and private sectors will continue to weigh on the pace of the economic recovery.
The risks surrounding the economic outlook for the euro area continue to be on the downside. Developments in global financial markets and in emerging market economies, as well as geopolitical risks, may have the potential to affect economic conditions negatively. Other downside risks include weaker than expected domestic demand and insufficient implementation of structural reforms in euro area countries, as well as weaker export growth.
According to Eurostat 's flash estimate, euro area annual HICP inflation was 0.5% in March 2014, down from 0.7% in February. The decrease reflects falls in the annual rates of change of the food, goods and services components, partly offset by a more moderate decline in energy prices. On the basis of current exchange rates and prevailing futures prices for energy, annual HICP inflation is expected to pick up somewhat in April, partly related to the volatility of service prices in the months around Easter. Over the following months, annual HICP inflation is expected to remain low, before gradually increasing during 2015 to reach levels closer to 2% towards the end of 2016. At the same time, medium to long-term inflation expectations remain firmly anchored in line with price stability.
The Governing Council sees both upside and downside risks to the outlook for price developments as limited and broadly balanced over the medium term. In this context, the possible repercussions of both geopolitical risks and exchange rate developments will be monitored closely.
Turning to the monetary analysis, data for February 2014 point to subdued underlying growth in broad money -LRB- M3 -RRB-. Annual growth in M3 was broadly stable in February at 1.3%, compared with 1.2% in January. The growth of the narrow monetary aggregate M1 remained robust at 6.2% in February, after 6.1% in January. The main factor supporting annual M3 growth continued to be the increase in the MFI net external asset position, reflecting the keen interest of international investors in euro area assets.
MFI loans to the private sector continued to decline in February. The annual rate of change of loans to non-financial corporations -LRB- adjusted for loan sales and securitisation -RRB- was -3.1%, compared with -2.8% in January. Weak loan dynamics for non-financial corporations continue to reflect their lagged relationship with the business cycle, credit risk and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households -LRB- adjusted for loan sales and securitisation -RRB- stood at 0.4% in February 2014, still broadly unchanged since the beginning of 2013.
Since the summer of 2012, substantial progress has been made in improving the funding situation of banks. In order to ensure an adequate transmission of monetary policy to the financing conditions in euro area countries, it is essential that the fragmentation of euro area credit markets declines further and that the resilience of banks is strengthened where needed. This is the objective of the ongoing comprehensive assessment by the ECB.
To sum up, the economic analysis confirms our expectation of a prolonged period of low inflation followed by a gradual upward movement in HICP inflation rates towards levels closer to 2%. A cross-check with the signals from the monetary analysis confirms the picture of subdued underlying price pressures in the euro area over the medium term.
As regards fiscal policies, euro area countries have made important progress in correcting fiscal imbalances. They should not unravel past consolidation achievements and should put high government debt ratios on a downward trajectory over the medium term, in line with the Stability and Growth Pact. Fiscal strategies should ensure a growth-friendly composition of consolidation to achieve better quality and more efficient public services, while minimising the distortionary effects of taxation. Further decisive steps are needed to reform product and labour markets with a view to improving competitiveness, raising potential growth, generating employment opportunities and making euro area economies more flexible.
Question: Mr Draghi, in your comments, you noted that the Governing Council was unanimous in its commitment to using unconventional instruments that are within its mandate. Can you tell us whether or not that includes quantitative easing -LRB- QE -RRB- with the government bond element to it? And for my second question: Is the Governing Council unanimous in what sort of conditions it would need to see resolved in terms of the outlook and also in terms of the exchange rate in order to tap some of these unconventional measures?
Draghi: I think you have rightly pointed to the key sentence in the statement:" The Governing Council is unanimous in its commitment to using also unconventional instruments... '' -- meaning that we have n't finished with our conventional measures --"... also unconventional instruments within its mandate in order to cope effectively with risks of a too prolonged period of low inflation. '' During the discussion we had today, there was indeed a discussion of QE. It was not neglected in the course of what was actually a very rich and ample discussion.
Draghi: The exchange rate is very important for price stability, so much so that we have made an explicit reference to it in the introductory statement, as you have seen, where we say that"... the Governing Council sees both upside and downside risks to the outlook for price developments as limited and broadly balanced over the medium term. In this context, the possible repercussions of both geopolitical risks and exchange rate developments will be monitored closely ''. But, as I have said several times, it is not a policy target. It is an increasingly important factor in our medium-term assessment of price stability, but it is not a policy target. In this sense, we do not link our medium-term assessment to a precise level of the exchange rate. It is part of the overall information that comes into play when we undertake our medium-term assessment.
Question: Good afternoon Mr Draghi. A first question relating to the inflation rate and referring not so much to consumer prices but to producer prices, where we have seen two consecutive months of a decline -- so, if you take producer prices, you could actually argue that we are already in a deflationary scenario. To what extent would you consider producer prices and how important are they for your assessment? The second question, quite simply: was today 's decision to not change interest rates unanimous or not? Thank you.
Draghi: Thank you. Certainly, producer prices have shown an even weaker dynamic than other prices, especially HICP or even core inflation. In spite of that, frankly, we do not see the risks of deflation as having increased with respect to our assessment, which basically says that these risks are limited on both sides.
Draghi: The discussion was very rich and the main difference of views was on the following point: to what extent does the latest data on inflation change the medium-term outlook? In this sense, the situation today was different from November, where we had certainty -- and, in fact, it turned out to be exactly so -- we had certainty that the November data, lower than expected, would change the medium-term outlook. This time it came out lower than expected and there was a difference of views as to whether it is actually changing the medium-term outlook or not. In the end it was thought that we need more information to assess whether there has been a change in the medium-term outlook.
Draghi: There are obviously different viewpoints, but the final consensus that the Governing Council came to was exactly the one illustrated in the introductory statement. In the course of our discussion, we talked about lower interest rates, we talked about a lower deposit facility rate, we talked about prolonging the fixed rate full allotment, we talked about QE -- so there was an ample and rich discussion, which is confirmed by the statement that I already read about the unanimity of the Governing Council and its commitment to fight risks for price stability.
Question: Can you describe a little bit more what kind of information you are looking for on whether or not these latest inflation figures are changing your medium-term outlook? If you 're not going to act when its 0.5%, what does it take to get you to act on some of these things? And my second question is: you clearly changed the rhetoric a little bit in terms of your willingness to act swiftly -- being resolute -- but do your rhetoric and your easing bias lose credibility each passing month that you do nothing in the face of these very low inflation rates?
Draghi: On the first point: there are a couple of factors that somehow clouded the analysis of whether this latest inflation data would actually be a material change in our medium-term outlook or not. One has to do with the volatility of services prices and the fact that Easter time this year comes remarkably later than last year. The explanation is that, around Easter time, services expenditure usually goes up -- demand for services goes up -- especially travel, and this affected last year 's prices and it 's going to affect this year 's prices. So you have a base effect which produced much lower inflation data in March and may well produce higher inflation data next month.
Draghi: The second point was simply a base effect of energy prices. These two factors somehow made the analysis, which is relevant for our decision-making, more complex. We need some more observational points and we will have our assessment in the course of time. Now, I 'm not sure we 're actually losing credibility on our forward guidance. As a matter of fact, if you look at the short-term interest rates and the forward yield curves, our forward guidance has been, and is being, quite successful. The medium-term forward interest rates have been fairly well anchored and stable at the levels that we wanted, even though the period over the last three, four, five months has seen a substantial -- I would n't say volatility -- but certainly numerous actions by other jurisdictions, both on the monetary policy front and also, if you consider the volatility that has characterised the emerging market economies, exchange rates and interest rates. So, notwithstanding these external developments, the medium-term forward curves and the short-term money market curves remain pretty stable. If you judge successful forward guidance by this measure -- perhaps I am biased observer, of course, but I think the Governing Council would agree with this and would tend to define the forward guidance as having been quite successful.
Question: First, you stressed the great unity among the Governing Council in agreeing on QE as a measure to be taken, and you said that basically nobody opposed it. Does that mean that last month, for example, there was not any unity on the topic, i.e. there was a dispute about QE? Second, could you elaborate on QE, on the discussion today, and tell us why you discussed it today?
Draghi: No, it 's different from what you said. Last month we did not discuss QE explicitly, which explains why we discussed it this month. It is quite obvious that the Governing Council is looking at this prolonged period of low inflation and it is quite obvious that the longer the period of low inflation, the higher the risk for inflation expectations in the medium and long term. That is why we discussed it and that is the reason for this statement here. But let me also add one other consideration that also applies to the question that I was asked a moment ago. If you take the actual inflation of the first quarter of 2012, it was 2.7%, and now it is 0.5%. Of these 2.2 percentage points of difference, 70% of this is due to lower energy prices and lower food prices. So when we consider this, you are in a situation where, at the same time, one is concerned, because this is low inflation, which has some drawbacks, but there are also some positive aspects in the sense that it supports the real disposable income especially of those people who have a fixed nominal income. And, at the same time, this is being caused by exogenous factors. In fact, if you see what is the inflation rate in other countries, for example in the United States, where they are much more advanced in their recovery than we are, or in Sweden, you can see that the low inflation contains a high percentage of global factors.
Question: I wonder if you could just elaborate on what are the risks of low inflation -- not deflation but low inflation -- for example, on debtors in the euro area, and how big a risk is that in the view of the Governing Council? Second, if you did decide to do QE, maybe you could tell us a little bit about how that would be designed in the context of the euro area, given the structure of the bond market and so forth.
Draghi: On the second question, it is something that we will be reflecting and thinking hard about. It is a question of how to design QE considering that our institutional and financial set-up is considerably different from what it is in the United States, for example. In the United States, the effect of a kind of QE is immediate on all asset prices, and the effect on the term premium is also quite direct, because it is an economy based on capital markets. In our case, the economy is based on the bank lending channel and therefore the programme has to be carefully designed in order to take this element into account.
Draghi: On the other point, first and foremost, the longer the period of low inflation, the higher the risk in terms of medium-term inflation expectations, which at the present time are firmly anchored and which, in our view of the medium term, represent the anchor towards which inflation will gradually pick up and will converge in the medium term. The second drawback of low inflation, especially in an area like the euro area, is that it makes the adjustment of imbalances much more difficult. It is one thing to have to adjust relative prices with an inflation rate which is around 2%, another thing is to adjust relative prices with an inflation rate which is around 0.5%. That means that the change in certain prices, in order to readjust, will have to become negative. And you know that prices and wages have a certain nominal rigidity which makes these adjustments more complex. The third drawback has to do with the presence of a debt level, which, both for the private and public sectors, is still elevated. And with low inflation, the real value of this debt does not go down as fast as it would if inflation were higher, so it makes the adjustment of the debtors, the deleveraging, more difficult. There is also a precautionary consideration here. You want to have an inflation rate that is below, but close to 2% because -- and this is exactly what happened in Japan -- you may actually think you have a non-zero positive inflation rate, while as a matter of fact you are already in a deflationary situation. So, for measurement reasons as well, one would have to prefer an inflation rate which is below, but close to 2%. As I said, we do not see these risks now in the euro area. I have listed several times the differences between our situation and the situation in Japan in the 1990s and early 2000s. However, this does not mean that the Governing Council should remain unconcerned and that is the reason why we had such a wide and rich discussion today.
Question: First of all, what is your biggest fear for the euro area economy at the moment? And second, you mentioned the discussion of a lower deposit rate a little while ago, do you think that a negative deposit rate would be an appropriate way to tackle any further euro appreciation. Would it be preferable to cut the main refinancing rate at the same time as the deposit rate in that case?
Draghi: Well, on the first question, my biggest fear is actually to some extent reality, and that is the protracted stagnation, longer than we have in our baseline scenario. Right now, it 's pretty severe, with levels of unemployment that -- even though they have stabilised, and we see marginal improvements here and there -- are very high. And the longer they persist, the more likely it is that they will become structural, namely much harder to lower through conventional policy measures. So that 's my biggest fear, and that 's why monetary policy is important, but it 's not the only thing. To respond to this fear, one needs a complex package of policies and, as we always stress, structural reforms come first, because many of the problems of the euro area are structural. And I 'm sure that 's also the biggest fear for the Governing Council as a whole. We discussed the possibility of negative deposit rates, but our objective is maintaining price stability. We do n't discuss policy measures for the effect they might have on the exchange rate ; that is going to be determined by the marketplace. This is one of the elements that we consider for price stability, and it certainly was an instrument which received a good deal of attention during today 's discussion. A lowering of the corridor was another point of today 's discussion.
Question: Could you explain to me please why you do not insist on core inflation in your communication -- core inflation which is not polluted by one-off effects like Easter or other things and that was down from 1% to 0.8% in March? Does the ECB pay much attention, or should it pay much attention, to this core inflation already, because it is in line with the forecasted inflation you communicated? I make a short parallel with companies. They always, in their financial communication, insist on adjusted EBIT, for instance adjusted earnings. Why does core inflation not play this role in your communication? Secondly, is your second biggest fear maybe France? After you were in Paris last week and said very polite words, the new French finance minister made today his first remarkable statement. He said something like" France needs more time for deficit reduction and we want to discuss this with the European Commission, because we may need more time to meet the 3% deficit threshold ''. My question is, from the ECB 's point of view, how do you comment on this statement, which recalls a bit ancient times when France and Germany together torpedoed the Stability and Growth Pact?
Draghi: The first question actually goes back to the beginning of this institution, and there was a prolonged discussion on whether it should be core inflation or headline inflation. In the United States, core inflation was already a concept that was being used, but the Governing Council at that time decided that the important concept was headline inflation. I remember someone saying that if you start using core inflation too much, you exclude everything that moves around. And I think that was one of the reasons that inspired this choice at that time. Also, there are reasons that have to do with better capturing the pass-through effects of exogenous factors like energy prices. But certainly what you said is absolutely correct: the core inflation this month declined less than the headline inflation, at 0.8%. It declined from 1% to 0.8%, so it is above the headline inflation, showing the effects of energy prices. By the way, before, I mentioned that there were two reasons for this effect in March, for the 0.5%: one was the volatility of services prices around Easter time, and the second one was a base effect on energy. But I should also add that this does not explain the whole of the difference. So, to some extent, the 0.5% in March came as a genuine surprise. We are not talking about huge differences: the reasons that I gave you before explain the greatest part, but not 100%, of the difference with the previous month. And our mandate is expressed -- and this is more of a legal reason -- in terms of price stability, defined as headline inflation. There is no qualifier to this. But, as you have seen, the more energy prices, the more food prices, the more outside factors, and more generally commodity prices or indirect taxes change the headline inflation, the more we have been using both concepts in our communication.
Draghi: The other point you made is actually very important. Let me re-read what I said in the Introductory Statement:" as regards fiscal policies, euro area countries have made important progress in correcting fiscal imbalances. They should not unravel past consolidation achievements and should put high government debt ratios on a downward trajectory over the medium term, in line with the Stability and Growth Pact ''. This is important because we all remember the experiences to which you made reference of the early 2000s. And undermining agreed rules undermines trust. So, it is quite important that fiscal consolidation is growth-friendly, as I have said many times, namely based on lower taxes, lower current government expenditure, and perhaps if there is room, higher expenditure in infrastructure and structural reforms. So it is important that fiscal consolidation is in a medium-term perspective growth friendly, but it should adhere to the pre-agreed rules. Otherwise, trust is undermined.
Question: My first question is on the March inflation figures. You said that services prices and energy prices are not enough to explain the decrease and that the figures were also a downward surprise for you. Some people say that such downward surprises are becoming more the rule than the exception, looking at the October figures last year and the March figures this time. How worried are you about this fact and what are the implications for the ECB?
Question: My second question is on QE. Is it correct to understand your comments today to mean that QE would not only be considered if there were a real threat of deflation in the euro area as a whole, but also if there were a risk of a" too prolonged period of low inflation ''?
Draghi: On the second question, I can only reread the statement that has been agreed by the whole Governing Council:" The Governing Council is unanimous in its commitment to using also unconventional instruments within its mandate in order to cope effectively with risks of a too prolonged period of low inflation. ''
Draghi: The other point you made is also correct. The ECB 's projections have underestimated inflation a few times, and the reason for this is -- and this has been quite common to most institutions -- that they have underestimated the declines in energy prices or the lower rates of change in energy prices. There is no doubt that some profound changes are taking place in the world energy markets and you know which ones I am thinking about. But on top of this, the change is constant. Also, one may want to consider -- and I think I made reference to this in the introductory statement -- the geopolitical risk that may materialise into changes in energy prices as well. So you are right, it has been underestimated several times and this has had an immediate impact in terms of underestimating the decline in the rate of change in prices.
Question: Did I understand you right that you were saying that the European set-up of the economy being so dependent upon banks that a potential QE here in the Eurozone would n't work as efficiently as in the United States? And secondly, what 's your answer to the calls from the Managing Director of the IMF, Christine Lagarde, to further ease monetary policy in the euro area?
Draghi: On the first question, this has to be taken into account. When the Fed buys assets or buys government bonds, it does change prices all across the spectrum of all assets, and this has an immediate or direct effect on credit, because most of the credit goes to the real economy via the capital markets. That is the big difference. In our case, all these effects go through the banks, so the final effect on the real economy depends, of course, on the demand for loans, but also on the state of health of the banking system. The euro area can not really go back to serious growth if the banking system is impaired. A healthy banking system is more essential to the euro area than to other financial systems that are more market-based. In this sense, the Asset Quality Review and, more broadly, the Comprehensive Assessment that the ECB is undertaking are crucial to restore trust in the banking system, to open capital markets for the banking system and, most importantly, to shed light on what is in the balance sheets of the banks of the euro area. And let me say that the developments that we have seen in the last six or eight months are quite encouraging, because you now have several large institutions all over the euro area that are either recapitalising themselves or selling assets or making huge provisions. So, there is the sense that, even without waiting for the end of the Asset Quality Review, the simple fact that we are going to have this Asset Quality Review has provoked a series of actions by the banks and by the supervisors to strengthen the banking system. So, I am pretty confident that, by the time we do the Asset Quality Review, we will actually find a stronger banking system than we had before announcing it.
Draghi: On the second point, I think the IMF has been of recent extremely generous in its suggestions on what we should do or not do and we are really thankful for that. But the viewpoints of the Governing Council are in a sense different. And frankly I would like the IMF to be as generous as they have been towards us with other monetary policy jurisdictions -- for example issuing statements just the day before an FOMC meeting takes place. Anyway, I think we will certainly value the advice of the IMF and, certainly, it is an important contribution to our analysis.
Question: You used two interesting adjectives in your opening statement which I am hoping you can maybe give us some guidance on. One, of course, is the too prolonged period of inflation and I am wondering if you might be able to elaborate on that, given your statement about the most pressing concern for you being stagnation. The second was with respect to sizeable unutilised capacity. Given that this is a relatively new component of your discussions, I am wondering if it might be helpful for you to describe that in more specific terms and maybe going forward give deeper definition to the market as to how that will impact your conversations in the coming months?
Draghi: On the first point, the too prolonged period of low inflation is, by itself -- and I think I have said this -- a risk, because the longer the period of low inflation, the more likely the danger of inflationary expectations in the medium term becoming unanchored. So this is both a definition related to the length of time -- the time horizon -- but it is also a definition that impinges on the risk of a lower inflation path than we have in our baseline scenario. It has these two dimensions, both time and risks. The second point you made is absolutely correct: this is the new concept that we introduced in our Introductory Statement last time, but this time it is even more explicit. And this reflects the fact that even though we are witnessing improvements -- quite continuous improvements, I must say, on the real side of the economy -- the PMI -- both in terms of hard data and survey data, we have evidence that there is plenty of slack in the euro area economy. Now the issue is, of course, and you are aware of this, how do you measure it? There are many definitions of this and all of them are uncertain. However, whether we look at the labour markets, where we see unemployment rates that are much higher than historical averages, or we look at the various definitions of output gap given by the IMF, the Commission, the OECD -- and each of these uses different measures -- we see an output gap that is pretty wide and that only gradually closes up towards the end of our medium-term horizon. So this is the reason why we have to have a growth rate in the coming months that is higher than the potential, so as to basically close this output gap which weighs on demand and therefore on price stability. This is something I have discussed several times when we say that low inflation rates do depend on global factors: they do depend on supply factors and relative price adjustments, but they also depend on a weakness of demand, where the existence of a wide output gap certainly plays a role. Even though we have to be cautious about how to measure this.
Question: Could you clarify the issue of inflationary expectations, which you say are firmly anchored? Actually, a number of measures of expectations show them sliding and the convergence to the 2% moving further ahead in the future. Could you please explain what time horizon you envisage when you look at inflationary expectations, because they are actually sliding in the shorter term? The other question follows on from one of your previous answers about credit. Some time ago you seemed to think that as the AQR was done on the figures for the end of 2013, banks would take that into account in the extension of credit to the real economy in the course of this year. This is clearly not happening -- actually credit is still contracting. Do you now expect this to happen -- I mean this sort of recovery of credit -- only when the whole comprehensive assessment is finished or before or do you plan to do anything about that?
Draghi: Let me respond immediately to the second question, because we are trying to understand better what is happening here. What is happening -- and this comes from direct evidence from several large institutions -- is that new credit is actually expanding. It is actually expanding at relatively decent rates. But what we observe is not unfortunately -- from the figures we have so far at least ; I hope I have better figures next time -- new credit, but gross credit ; namely you have the new credit and you have the redemptions of old credit which is becoming due. For example, one of these institutions we asked said they foresee a 4.5% expansion in new credits this year, but redemptions of something like 3%. So, in the end, what we will be observing in the best case is 1.5% from this institution. I am not giving numbers for the whole area. And this is what happens, basically: there is still deleveraging that has to take place where, frankly, this deleveraging is not caused by the AQR but simply by an assessment of the credit quality that is in place and the banks ' decision to improve credit quality, basically deleveraging the credits that are not profitable. So, I think that is what we are observing. Improvements in lending to new clients, but at the same time redemptions of old loans weighing on credit figures.
Draghi: The other question had to do with expectations. Well, here there are different measures. If you take short-term expectations, you are absolutely correct: they are sliding down. If we take medium to long-term expectations five years on five years, they remain well anchored to 2%. Basically we are trying to take the definition of expectations which relates to our concept of medium-term assessment, which is the concept through which we judge inflation and through which we judge and undertake our outlook assessment.
Question: You told us about a few non-standard measures. Are also ones like new LTROs or Securities Market Programme -LRB- SMP -RRB- sterilisation still on the table?
Draghi: We mostly discussed SMP sterilisation, but we also discussed briefly, more briefly than other points that I have mentioned before, an LTRO. I am saying this to basically make the following point. These are many instruments, each one of them will address a specific risk. For example, an LTRO -- untargeted -- would address liquidity risk. An LTRO -- targeted -- will, if successful, address the lending to the real economy. Now, the problem with these two measures is that the second will have to be carefully designed so as to make sure that this incentive is actually effective in stimulating new lending. The ECB has done, I think, what was possible. And I think that we reacted immediately to the situation through a variety of measures. We will continue to do so when we design an effective measure. And on the other measure -- an untargeted LTRO -- frankly, what you are observing now on the excess liquidity front is that we have moved from $ 800 billion a year-and-a-half ago -- maybe two years, well, a year-and-a-half ago -- to about $ 100 billion. And, by the way, you had asked about the forward guidance being successful. That is another piece of evidence that with such a reduction of excess liquidity, our forward guidance is still keeping the rates where they are. That is why I have warned several times not to work with, not to have in mind, not to utilise a stable relationship between excess liquidity and short-term interest rates. So, there was one question you asked about different instruments and...
Question: It was the same question on SMP sterilisation.
Draghi: We have discussed that, too.
Question: Is there a measure that has your preference?
Draghi: It is not my preference, it is the Governing Council 's preference. So we will continue our discussions, and important thing is that the Governing Council is unanimous, as I have said, in its commitment to using also unconventional instruments -- conventional, but also unconventional instruments -- within its mandate in order to cope effectively with risks of a too prolonged period of low inflation.
Question: I would like to ask another question about the possible design of quantitative easing -LRB- QE -RRB-. There were members of the Governing Council stating that QE could be less problematic in the euro area if you did not buy public debt but rather private debt. Would you agree with that and what do you generally think about focusing a purchase programme on private debt given the fact that it would be rather limited in size in that case?
Draghi: The answer to the first question is yes. There are obviously different preferences about which QE would be more effective, and we will continue working on that in the coming weeks. And the second point on private debt is that it is not easy to design a programme of QE on private debt that is large in size and does n't have risk for financial stability. That is why the ECB is so squarely behind the need to develop an ABS market, because that is where the largest pool of private sector assets lies, basically banking loans -- as I said before, we are a bank-based economy. So, if we are able to have these loans being correctly priced and rated, and traded, like it would happen, like it used to happen in the ABS market before the crisis, then we naturally have a very large pool of assets. The ECB is squarely behind this in a variety of ways -- first and foremost, in its action to revisit the regulation for ABS. At the high point of the crisis, the regulation for ABS did not distinguish between simple ABS like the ones that had mortgages in them or the ones that had some SME -LRB- small and medium-sized enterprise -RRB- loans, and highly structured ABSs, quite complex. The first ones were typically European ; the second ones were typically generated in the United States. The default rate of the first was something like between 1% and 2%. The default rate of the second was between 16% and 18% -- I ca n't remember now exactly the figures. In spite of this difference, the regulation concerning capital charges was the same, and the same thing for liquidity and other regulatory issues. That is why we have to revisit this and we find right now ample agreement also in other monetary policy jurisdictions. As a matter of fact, the ECB will present a joint paper with the Bank of England on this point at the next IMF meetings.