FRANKFURT (MNI) – The following is the second part of the verbatim
text of the opening 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.

Turning to the monetary analysis, taking the appropriate
medium-term perspective, the underlying pace of monetary expansion
continues to be moderate. The annual growth rate of M3 decreased to 2.0%
in November 2011, after 2.6% in October. As in the previous three
months, monetary developments in November were affected by the
heightened uncertainty in financial markets.

The annual growth rate of loans to the private sector, adjusted for
loan sales and securitisation, decreased to 1.9% in November, from 3.0%
in October. The annual growth rates of loans to non-financial
corporations and loans to households, adjusted for loan sales and
securitisation, both moderated in November, and stood at 1.8% and 2.3%
respectively, with slightly negative monthly flows observed for MFI
loans to non-financial corporations. Overall, despite the moderation in
loan growth, the figures on lending do not so far suggest that the
heightened financial market tensions led to a sizeable curtailment of
credit in the euro area as a whole in the period to November. At the
same time, given that credit supply effects can manifest themselves with
lags, close scrutiny of credit developments is warranted in the period
ahead.

The soundness of bank balance sheets, supported by the increase in
capital positions, will be a key factor in facilitating an appropriate
provision of credit to the economy over time. It is essential that the
implementation of banks recapitalisation plans does not result in
developments that are detrimental to the financing of economic activity
in the euro area.

To sum up, incoming information broadly confirms our previous
assessment. Inflation is likely to stay above 2% for several months to
come, before declining to below 2%. As expected, ongoing financial
market tensions continue to dampen economic activity in the euro area,
while, according to some recent survey indicators, there are tentative
signs of a stabilisation in activity at low levels. The economic outlook
remains subject to high uncertainty and substantial downside risks. In
such an environment, cost, wage and price pressures in the euro area
should remain modest and inflation rates should develop in line with
price stability over the policy-relevant horizon. A cross-check with the
signals from the monetary analysis confirms this picture, with the
underlying pace of monetary expansion continuing to be moderate.

Turning to fiscal policies, euro area governments need to do their
utmost to support fiscal sustainability by correcting excessive deficits
in accordance with the agreed timetables and by moving to a structural
balanced budget or surplus position over the medium term. Slippages in
the implementation of fiscal consolidation plans of vulnerable countries
must be corrected swiftly by structural fiscal improvements. With regard
to the new provisions of the EU economic governance framework that
recently came into force, it is crucial that all the elements be
implemented rigorously. Only ambitious policies to prevent and correct
macroeconomic and fiscal imbalances will foster public confidence in the
soundness of policy actions, and thus strengthen overall economic
sentiment.

The Governing Council welcomes the European Councils agreement to
move to a stronger economic union, which was announced on 9 December
2011. The new fiscal compact, comprising a fundamental restatement of
the fiscal rules together with the fiscal commitments that euro area
governments have made, is an important contribution to ensuring the
long-run sustainability of public finances in the euro area countries.
The wording of the rules needs to be unambiguous and effective. The
further development of the European financial stability tools should
make the operation of the European Financial Stability Facility and the
European Stability Mechanism more effective. The swift deployment of
these tools is now urgently needed. Concerning the involvement of the
private sector in financial assistance for indebted countries, we
welcome the reaffirmation that the decisions taken on 21 July and 26 and
27 October 2011 concerning Greek debt are unique and exceptional.

To accompany fiscal consolidation, the Governing Council calls for
the urgent implementation of bold and ambitious structural reforms.
Going hand in hand, fiscal consolidation and structural reforms would
strengthen confidence, growth prospects and job creation. Key reforms
should be rapidly carried out to help the euro area countries to improve
competitiveness, increase the flexibility of their economies and enhance
their longer-term growth potential. Product market reforms should focus
on fully opening up markets to increased competition. Labour market
reforms should focus on removing rigidities and enhancing wage
flexibility.

We are now at your disposal for questions.

[TOPICS: M$$EC$,M$X$$$,M$$CR$,MT$$$$,MGX$$$]