Translating Draghi's Press Conference Into Truthspeak
I have read the transcript of Mario Draghi’s monthly press conference so you don’t have to. He made no big news, but there is always information. I enjoy reading the remarks of spokespeople for disastrous failures. I like to see how they phrase the fact that the wheels have come off the bus: “Your company had a tough time in 2012, and we expect another challenging year in 2013.”
Do you remember “Baghdad Bob”, the Iraqi minister of information during the American invasion? No matter how dire things got--such as having his ministry blown to bits--he was always upbeat and confident of victory. That’s who Mario Draghi is these days, "Frankfurt Fred".
Draghi is required to begin his pressers with a review of the telemetry on the eurozone’s economic and financial performance. Thus he has no choice but to concede that all of the dials are on zero, although that’s not how he says it. He never lies outright, but he plays games with words in a Clintonesque fashion. One must always remember that he is the smartest man in Europe. He is very deft. This is what Draghi said today (brutally abridged, with my parenthetic translations into truth):
Following a six-quarter economic contraction in the euro area,
[six quarters into the current depression]
recent confidence indicators based on survey data have shown some further improvement from low levels and tentatively confirm the expectation of a stabilisation in economic activity at low levels.
[The data suggest that the level of economic growth will rise from contraction to stagnation.]
At the same time, labour market conditions remain weak.
[At the same time, unemployment remains at crisis levels in the southern region of our country.]
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The remaining necessary balance sheet adjustments in the public and private sectors will continue to weigh on economic activity.
[The catastrophic deleveraging in the public and private sectors will continue.]
Taking the appropriate medium-term perspective, underlying price pressures are expected to remain subdued, reflecting the broad-based weakness in aggregate demand and the modest pace of the recovery.
[Deflation will continue due to unexplained solar phenomena.]
Turning to the monetary analysis, underlying money and, in particular, credit growth remained subdued in June. Annual growth in broad money (M3) decreased in June to 2.3%, from 2.9% in May.
[The last thing that the eurozone needs right now is monetary stimulus.]
The annual rate of change of loans to the private sector weakened further. Weak loan dynamics continue to reflect primarily the current stage of the business cycle, heightened credit risk and the ongoing adjustment of financial and nonfinancial sector balance sheets.
[Credit contraction is continuing due to unexplained solar phenomena.]
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 whole euro thing is off unless someone can fix the Club Med banks PDQ.]
On credit growth, we have to acknowledge that underlying loan growth has remained subdued over recent quarters, and that this has been true for quite a time. We know that there are several reasons for this: first and foremost, weak economic demand, second, heightened credit risk and, third, continued deleveraging by households and enterprises.
[Credit contraction is understandable given the current level of solar activity.]
We are not at all oblivious to the fact that inflation in the medium term undershoots our objective of inflation that is close to, but below, 2%. The justification for this is the broad-based weakness in the economy and the subdued monetary and credit dynamics.
[Inflation is always low during depressions.]
If one accepts that the sole purpose of the ECB is price stability, and that widespread human misery is irrelevant to the workings of the ECB, and if one really believes that in his heart, then one can sleep at night. It’s kind of like being a crew member on the Enola Gay.