FRANKFURT (MNI) – The following is the second part of a verbatim
text of the introductory statement by European Central Bank President
Mario Draghi at his press conference following today’s monthly
monetary policy meeting of the ECB’s Governing Council:

The overall size of monetary financial institutions balance sheets
remained broadly unchanged over the past few months. The soundness of
bank balance sheets will be a key factor in reducing potential negative
feedback loop effects related to tensions in financial markets, thereby
facilitating an appropriate provision of credit to the economy over
time. We therefore welcome the agreement of the European Council to
proceed with the increase in the capital position of banks to 9% of core
Tier 1 by the end of June 2012. We also fully support the call to
national supervisors to ensure that banks’ recapitalisation plans do not
lead to excessive deleveraging.

To sum up, based on its regular economic and monetary analyses, the
Governing Council decided to reduce the key ECB interest rates by 25
basis points. While inflation has remained elevated and is likely to
stay above 2% for some months to come, inflation rates are expected to
decline further in the course of 2012 to below 2%. A cross-check with
the information from our monetary analysis confirms that the underlying
pace of monetary expansion continues to be moderate. After todays
decision, inflation should remain in line with price stability over the
policy-relevant horizon. Owing to their unfavourable effects on
financing conditions and confidence, the ongoing tensions in financial
markets are likely to dampen the pace of economic growth in the euro
area in the second half of this year and beyond. The economic outlook
continues to be subject to particularly high uncertainty and intensified
downside risks. Some of these risks have been materialising, which makes
a significant downward revision to forecasts and projections for average
real GDP growth in 2012 very likely. In such an environment, price, cost
and wage pressures in the euro area should also moderate; todays
decision takes this into account. Overall, it remains essential for
monetary policy to maintain price stability over the medium term,
thereby ensuring a firm anchoring of inflation expectations in the euro
area in line with our aim of maintaining inflation rates below, but
close to, 2% over the medium term. Such anchoring is a prerequisite for
monetary policy to make its contribution towards supporting economic
growth and job creation in the euro area.

Turning to fiscal policies, all euro area governments need to show
their inflexible determination to fully honour their own individual
sovereign signature as a key element in ensuring financial stability in
the euro area as a whole. The Governing Council takes note of the fiscal
commitments expressed in the Euro Summit statement of 26 October 2011
and urges all governments to implement fully and as quickly as possible
the measures necessary to achieve fiscal consolidation and sustainable
pension systems, as well as to improve governance. The governments of
countries under joint EU-IMF adjustment programmes and those of
countries that are particularly vulnerable should stand ready to take
any additional measures that become necessary.

It is crucial that fiscal consolidation and structural reforms go
hand in hand to strengthen confidence, growth prospects and job
creation. The Governing Council therefore calls upon all euro area
governments to accelerate, urgently, the implementation of substantial
and comprehensive structural reforms. This will help the euro area
countries to strengthen competitiveness, increase the flexibility of
their economies and enhance their longer-term growth potential. In this
respect, labour market reforms are essential and should focus on
measures to remove rigidities and to enhance wage flexibility, so that
wages and working conditions can be tailored to the specific needs of
firms. More generally, in these demanding times, moderation is of the
essence in terms of both profit margins and wages. These measures should
be accompanied by structural reforms that increase competition in
product markets, particularly in services including the liberalisation
of closed professions and, where appropriate, the privatisation of
services currently provided by the public sector. At the same time, the
Governing Council stresses that it is absolutely imperative that euro
area national authorities rapidly adopt and implement the measures
announced and recommended in the Euro Summit statement of 26 October
2011.

We are now at your disposal for questions.

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