 Good afternoon and thank you very much for joining today's Civil Society Seminar dedicated to the outcome of the ECB's strategy review. My name is Marie Therese-Bitterlich and I work in communications here at the ECB. I'll be moderating this event today. I'm delighted to be joined by Frank Smetz. Frank is the director of general economics here at the ECB and as the coordinator of the strategy review process able to share your first hand insights onto the strategy review process and of course on the new monetary policy strategy itself. We're delighted to have you to get a better understanding of what this new strategy is all about what has changed what has remained and what it means for us as citizens. We'll be structuring this seminar slightly differently than usual. We'll be starting with a conversation between Frank and myself for about 25 minutes before we'll be opening the floor to your questions for the remaining half an hour of this event. A little bit of housekeeping just before we get started. In case you have any technical problems or questions, please feel free to reach out to the colleagues in the background via the chat function and just make sure that you're chatting with all panelists. As we mentioned in the invitation of the seminar, we'll be recording the seminar and uploading it to the ECB's website afterwards. With that out of the way, let's get started. Frank, last week the president announced the outcome of the ECB strategy review. The president referred to the new strategy as a strong foundation that will guide us in our conduct of monetary policy in the years to come. Can you explain what this new strategy is all about and how it differs from the previous one? Sure, my ideas and let me first of all welcome the participants to this webinar on the new monetary policy strategy. One way of describing the new monetary policy strategy is to use the words of chair Powell of the American Central Bank when he introduced their new strategy. This to say that it's an evolution, not a revolution. And the main reason for that is that of course the strategy is anchored in the treaty, which gives the primary mandate to the ECB of maintaining price stability. So the ECB is requested to stabilize to maintain the value of our money of our currency, the euro. And that's the best way in which it can contribute to the welfare and the well-being of your area citizens. And of course that's very much an anchor when the strategy in the end is about how to achieve that mandate. But of course, the last strategy was about 18 years ago in 2003 and many things have changed. And of course, and for that reason, an update of the strategy was overdue. And this is really why President Lagarde when she became president at the end of 2019 sort of initiated this whole process. I mean, the biggest change is probably that we've moved from a relatively inflationary environment into sort of a low interest rate, low inflation environment. Why is that important for central banks? And this is a global phenomenon. Everywhere in the world, central banks were constrained in terms of using their traditional interest rate instrument by this low interest rate environment. Why? Because interest rates can go negative, but not infinitely, so they cannot go very negative. And so central banks have used other tools to try to achieve their price stability objective in that context. So that's one important reason. There have been many other structural changes in the past two decades. One is the process of globalization. Remember the integration of China in the world economy that has put downward pressures on international prices. Another important structural change has been digitalization. Think about the emergence of e-commerce. Again, everything else equal. This has a downward impact on prices. And so it was important to analyze those phenomena and to see what are the implications for our monetary policy strategy. And now I have not yet mentioned, of course, what is probably the biggest challenge for humankind in the coming decades, which is climate change and the policies to combat climate change. So that part of the strategy. And so the purpose of the whole process was really to make our strategy fit for purpose for the coming years. Thank you very much, Frank. What do you think is the most important change that came with this new strategy? Well, there have been a number of changes and we can we can talk about those. But let me maybe first focus on what is the core of the ECB monetary policy strategy. And that is how to formulate and maintain price stability. The visible change is probably the 2% symmetric inflation target. So the the governing council considers that in order to maintain price stability, it best aims for inflation to be at 2% in the medium term. Let me emphasize two aspects of this target. First of all, there's a small inflation buffer of 2%, which is important in order to reduce the risks of deflation and to give some policy space for interest rate policies in the long run. And then the other feature of this target, which is very important is that it is symmetric. So the governing council, the ECB views upward and downward deviations from this target as equally undesirable. We don't like high inflation. We don't like deflation or low inflation. And so this is a very important part of this announcement that the 2% is not a ceiling, which is sometimes what how our previous sort of definition of price stability was perceived. Of course, is very much a norm amongst central banks in the global economy. If you look at the Fed, the Bank of England, the Bank of Japan, they all have 2% inflation times. The second important change in the strategy statement is that the governing council recognizes that in order to maintain this symmetric inflation outcomes around 2%, it has to take into account the effective low amount on interest rates. And that interest rates cannot go very negative. I mean, the current policy rate, most important policy rate has minus 50 basis points. We probably can reduce that more but not by much. So what are the implications of that recognition? The definition I already mentioned, and that is that we need other instruments. And that's again, that's the asset purchases, that's the forward guidance, that's the lending operations, the refinancing operations towards the banks. And so part of the statement is to recognize that these unconventional what used to be called unconventional tools are part of our tool set in particular in the vicinity of this lower bound. Another indication that you will find in the monetary policy strategy statement is that the fact that you are that the central bank is more constrained in responding to negative shocks to inflation means that it has to take especially forceful persistent actions to avoid that these negative deviations become entrenched, that they affect inflation expectations, that they de-anchor inflation expectations. So this realization that when you are close to the proximity of the lower bound, that policy needs to be persistent, that it needs to be patient, that you cannot, that you should avoid premature tightening is a very important part of the overall framework. And of course, in those circumstances, it can also mean that inflation for a temporary period is moderately above the inflation target because of these patient policies. And the third implication is that, I mean, other policies can help in those circumstances and particularly fiscal policies. And that is something that we have seen in response to the pandemic. Fiscal and monetary policy have worked hand in hand to provide sort of the bridge to companies, to households across the pandemic. And particularly when interest rates are concerned, fiscal policy seems to be more, more, more effective in stabilizing the economy and helping also to increase the space for monetary policy. Thank you very much, Frank. You explained the change in the 2% and also the importance of the zero lower bound. Are there any other topics that are relevant to European citizens that are mentioned or addressed in this strategy? Yes. I mean, I would like to hear mentioned two specific topics. The first one is the concern that we've heard in many of our listening events, particularly by young households, about the costs of housing, of shelter, and particular the owner occupied by housing. This is something that the governing council took very seriously and therefore it recommends to Eurostat, which is the European Statistical Institute that is responsible for the construction of the price index to actually include measures of owner occupied housing in our HICP index, the index that we use to measure in inflation. Now, of course, the ECB realizes that this is a multi-year project, but in the meantime, we will continue to use the HICP sort of the domain index to measure inflation and price stability. But we will also include initial estimates of owner occupied housing costs in our set of indicators that we regularly use to measure inflationary pressures. And so that should allow over time to have a more representative index of the full cost of living. The second important concern, of course, that we heard was climate change and of course also there, and this is really a new element in our monetary policy strategy. Also there, the governing council has committed to take into account climate change considerations in all aspects of our monetary policy and of central banking more generally, and it has basically committed to an action plan. There was a press release last week, which sort of gives some of the details and the timeline of that action plan to do so. And this is a crucial element of our monetary policy strategy for a number of reasons. I mean, first of all, climate change and the policies to combat it, to address it, do have a profound impact on the economy. And we all are witnessing the weather shocks that we face. They affect harvest, they affect prices, and so they affect the working of the economy. And as a central bank, we need to upgrade our tools to really understand the impact and take those effects into account when we make monetary policy decisions within our mandate. The second reason is that climate change, of course, comes with risks. There will be sectors that will be affected, that will benefit. Some of them will have to change their business model. So it's important that as a central bank, we have a big balance sheet that we really assess those risks correctly. And so risk assessment, upgrading our risk assessment is another part of our action plan. And the third reason is or a third element I would like to highlight here is the importance of disclosures and making clear that indeed the transparency about where those risks are is important and how to take those into account in our collateral framework and in our asset purchase program. So I would highlight these two sort of important additional elements of our strategy. Thank you. As part of the strategy review the ECB reached out to many stakeholders on the one hand you have the experts, the academics and also citizens and civil society organizations. What do you think has the ECB learned from listening or engaging with all of these different stakeholders as part of the review? Well, thank you. Thank you very much. I mean, a big difference in this strategy review compared to the 2003, which was also involved is indeed the enormous outreach that we have done to many stakeholders. If I counted correctly, we had like 17 events organized not only here at ECB but also by the national central banks of the Euro system. And of course we received many, many suggestions and comments by citizens all over the Euro area. We also listened to expert audiences, to academics, to analysts, the European Parliament, civil society organizations like the ones you are representing and as I mentioned individual citizens and also our own staff. Of course, the messages were sort of diverse and dependent very much on the personal perspective of the respondents. But many of the issues that we heard we already discussed in our conversation and one is climate change. Another one was the affordability of housing for particularly for young people. Of course the employment situation during the pandemic is an important concern for many citizens. And then finally also the side effects of our non-conventional policies like the negative interest rates was an important question and concern. So many of these elements we have looked into and we have analyzed. But one element that I would like to highlight at this point is also the importance of clear, consistent and credible communication. Because clearly our often technical style of communicating may be okay for experts and for academics, but it's not always easily understood by citizens and civil society more generally. And so one of the lessons learned is indeed to improve our communication. Both of the decisions that the governing council makes but also about what are we as the central bank for the Euro area about what are our goals, how do we try to achieve them. And that's very important to to to maintain the trust in our institution, which is really important for the effectiveness of our monetary policy. And so, going forward, we will on the one hand, try to have sort of a more direct communication more accessible communication also more visual communication on our monetary policy decisions. On the one hand, and on the other hand, we have had a very good experience with the listening events and hope and the governing council commits to continue this type of bilateral outreach. Thank you very much Frank for elaborating on the pillars of this new strategy. I am sure that by now many of the participating organizations will have questions or comments they'd like to raise. So we'll now be opening the floor to your questions for the remaining half an hour. You can start raising your questions by raising your virtual hand, your virtual hand should be a small button that is located on the right hand side of your screen it should be located underneath the participants list. And once I see that you've raised your virtual hand, I will call your name and my lovely colleagues in the background will connect you. So just bear with us for a moment or two as it might take a while to get you upgraded and then whenever you're ready, feel free to take the floor. You'll be automatically unmuted and we do encourage you to turn on your camera as well so that we can see you when you ask your question. Please introduce yourself first and your organization before you address your comment to Frank. And do remember to lower your electronic hand after you've asked the question as this makes it easier for us to identify if you'd like to take the floor again. And with that, I'm going to take a look to see if we've got somebody who's raised the question already. I can see the first question comes from Miss Oryntia, but I hope I pronounced your name correctly and I apologize in advance if I did not. Please bear with us for one moment and you should be upgraded shortly. Hello. Hello. Hi, can you hear me? Yes. Thank you. Thank you very much. I'm Oryntia Batahan. I'm an economist here at Positive Money Europe and NGO based in Brussels. I have a question on the targeted longer term refinancing operations. Given its volume, the CELTROs represent one of the most important ECB monetary policy operations, yet they were not included in the climate road yet. Also, green CELTROs in particular have been deemed as an interesting idea by President Lagas at the European Parliament during the monetary dialogue in September 2020. So my question is, was there any discussion on greening the refinancing operations during the strategy review process? Thank you. Thank you very much. Well, first of all, on your question on green CELTROs. So, of course, in the work stream, we had a work stream that looked into the relationship between climate change and monetary policy. A number of possible measures and modifications of our operational framework were looked into. And this initially included some of the measures that you mentioned. But in terms of the actual action plan, the governing council decided to focus particularly on the issue of disclosures because this can have a very beneficial impact also on sustainable finance by increasing the transparency of the market and sort of openness about where climate exposures and climate risks are. And secondly, by focusing on both the collateral system, which of course is part of our lending operations and the corporate sector purchase program. So, in the context of our existing programs, rather than setting up new programs which of course also in the context of our price stability objective at this point would not be granted. So, of sort of green asset purchase program again, basically it's the same answer. It was seen as more important to actually look into our existing corporate sector purchase program, where, as you may have seen from the action plan. We'll have a work stream looking into the issue of market neutrality market efficiency and how that may lead to sort of alternative benchmarks for for our purchase programs. Thank you. Thank you. We've got the next question coming up from Mr. Mauricio Vargas from Greenpeace. Hello. Hello, we can hear you. Hello, can you hear me. Yes, sir, we can. Yes. Hello. Hello. I can't hear you. Maybe that's a technical problem. That's strange. We can hear you and see you very well. Maybe we will try to sort out this technical problem. And continue with the next speaker. And we'll try again to to upgrade you at a later stage to hear your question. So we will take the next question for now. This next question comes from Ms. Alessia del Vasto from Positive Money again. Hello. Hi, I hope you can hear me and see me. Yes, we can. Okay, great. Hi, again, it's Alessia del Vasto from Positive Money Europe. So, as an organization, of course, we recognize the importance of setting inflation target to percent right now. But, well, unfortunately, this BS constantly missed the target and the past year. So, we were wondering whether, well, if this would be continuous to struggle with, with reaching the inflation target with conceder introducing new instruments, new policy tools such as helicopter money. Thank you. Thank you for the presentation. Thank you very much for your for your question. I mean, at a general point, I mean, the statement does explicitly say that obviously, not only did we look into the existing instruments and sort of confirmed that they are effective. I think they have contributed to avoiding risks of deflation and supporting the economy and the reflation of the economy. But also, if necessary, the governing council, as it has always done over the past years, will of course consider other tools if appropriate to achieve its inflation target. And of course, that's where sort of the commitment to particularly in response to negative shocks to have an especially forceful and persistent response and action is important. That's where that is backed up by this commitment to use other instruments. This specific example of money drops, of course, there, it very much depends on the details, but we didn't look in as part of the strategy route into the details and the parameters of particular alternative instruments. This was seen as part of sort of the stance discussion rather than the strategy discussion. And of course, particularly money drops in some variants as a number of legal and economic questions and also interact with fiscal policy, which would raise concerns. But in terms of the general stance, the governing council is open to consider alternative instruments. Thank you. We're going to see if we have anyone else who'd like to ask a question. Please feel free to raise your electronic hands now. And then when you've raised your hand, I'll be able to pull you out and my colleagues will be able to upgrade you so you can take the floor. We have one more question from Edward a la Costa. Also from positive money, I believe. Hello. Hello. Hello. Hi. Can you hear me? Yes, we can. That's great. Thank you. I'm out with a la Costa from positive money Europe, and I have a question on the public. So recently from May 21st to July 2nd of this year, the Bank of England has opened a consultation on options for greening is corporate bond purchase scheme. The Bank will implement its new approach on the matter on the front court on the fourth quarter of 2021. And in the past months, President Lagarde has affirmed the ECB intense to increase the involvement of the public. And today you have confirmed this by highlighting the success of the ECB and events. I did the large participation to the scheme and to the consultation on the on the digital euro have shown society's great interest in being involved in the civil decision. So my question would be, would the ECB consider a consultation on the corporate sector purchase program to improve its engagement with the public. Thank you. Thank you very much for your question. I mean, in the press release and the, the annex which consists of the action plan know the various elements and also the timeline of the various areas in which we as a central bank will take into account climate change considerations in our strategy are very much laid out. At the same time, and this is also has been also made very clear again in the statement, the governing council has indeed committed to have a regular exchange and outreach with civil society with the general public. And of course, I think differently from what we had over the past year, it should not only be about listening but also about explaining and interacting and whether this type of exchange will be explicit in terms of on the specific program. I mean that's something that at this point I can't really say but for sure, there will be interaction on on the various aspects of the action plan. Thank you very much. And it seems that we can try again with Maurizio Vargas from Greenpeace. Please bear with us and you should be upgraded shortly. Hello, can you not hear me. Yes. Okay, great. Well, thank you, Mr. Smith for for your presentation and just let me comment that from my point of view, the strategy strategy at least related to your climate plans don't seem to be very ambitious to me. But perhaps you can convince me otherwise so I'm really excited and I have two questions. The first question is, what is the concrete implication of the new climate strategy that you proposed. I mean, you provided a plan but I think it's, it's quite vague. No, so therefore, for example, it would be nice to know, for instance, what concrete changes the strategy will be for for your CSPP portfolio. So could you elaborate a little bit on the potential changes we might see. And the other question I have is, why haven't you taken any concrete actions yet. I mean, you mentioned the urgency of the climate crisis, but your plans, like your timetable doesn't seem to be very ambitious. Neither so. Why haven't we seen any concrete results. And therefore, a third question from from a kind of precautionary perspective, wouldn't it be necessary to end at least some support for very carbon intensive companies right now. No, until you have a detailed plan. So thank you and happy to listen to your answers. Thank you very much for this question. I mean, I would back to differ and sort of claim that the action plan that the governing council has decided on is quite ambitious. It's clear sort of timeline and deliverables. What's of course true is that still a lot of work needs to be done in order to take some of the concrete actions that you seem to to adjust. And of course, I should also emphasize that some of those actions also depend on the progress that is being made at the European level, no, in terms of the various initiatives that the EU has taken. We're not acting in isolation. But if you look at, first of all, the timeline, which is, no, ultimately within a four year period but there's two, two steps, but also the breadth of the actions. Then I think we compare very favorable to any other central bank in terms of the ambition that we have in terms of concrete actions and quick wins. And I remind you that we are already have already taken some some actions. No, for example, in terms of including sustainability link bonds in our asset purchase program. I think we have announced that we will disclose not the climate risks in our non monetary policy portfolio and probably one of the first actions that may follow relatively in the first part of this this timeline will be to do the same for for our portfolio. So it's not just words, we actually are also following up and acting. And I believe it is sort of a wide ranging action plan that covers, of course, our core the core of our business which is know how can we better understand the impact of climate change on our mandate to achieve price stability, but also know our risk assessment I mean part of the action plan, for example, is also to examine and investigate and make sure that credit rating agencies have the relevant methodologies to take into account climate change risk so there's a catalytic role here that the bank ECB wants to wants to play. But finally, then we also looking at what I think are probably the most important parts of our operational framework that is the corporate sector purchase program and our collateral framework. In terms of your last question, I mean, should you already exclude and I mean this is again it will be subject of what is it line nine of the of the of the action plan point nine. Obviously, that that is actually the most effective way of in terms of reducing climate change risk, because many of those those comments will actually have to be some of the drivers of change we hope. So extreme decisions like like that may not be the most optimal. Thank you for that Frank. We have the next question from Mr Roger Casale from the Europe peoples forum. This is just a kind reminder to please lower your electronic hand after taking the floor so that we can see if you'd like to take the floor again and an encouragement for everybody to raise their electronic hands and take the floor. Thank you very much. I think you can hear me I'm not sure you can see me sorry. We can hear you. Okay, so. Well, thank you again. And thank you also for in the earlier presentation, both in the question and the answers for the discussion around the engagement of citizens and civil society and drawing up the strategic plan. I think all of us who are engaged in this enterprise of promoting citizen participation. Something that we focus on at Europe's peoples forum are very well aware that it's easy thing to talk about and it's a difficult thing to do. So, I wonder if you could comment on the on the challenges and the difficulties that you faced in reaching out to civil society and citizens in particular. As you have learned from how you went about doing that, that you would want to apply in relation to how you conduct future consultations and engagement of citizens. There's going to be another phase of the consultation and that's very welcome. I'm sure you agree that it's very valuable information that comes about from the engagement with citizens and civil society. Perhaps as even and this would be my second question. The thought in your mind that it would be good to put such consultations on a more permanent basis. Thank you for your question and particularly on the last suggestion I mean I will just take it as a as a as a useful suggestion. I mean in terms of our experience in reaching out to various parts of society in the euro area. Of course, I mean the main the first thing that comes to your mind about what are the challenges and the difficulties for an institution European institution like the ECB is that of course the audience are very diverse in a number of ways, but first and foremost in terms of language and culture. No, I mean, our union is is is is is about unity is diversity. And so to ensure that sort of that diversity is is acknowledged and that we can reach out to to the different parts of the society. I mean is is a challenge, even bigger challenge than I would say in a national environment. Fortunately, we are a, not only an ECB here in Frankfurt but also a system the euro system of national central banks. And I mean it's it's obvious that the NCB's the national central banks will play have played will continue to play a key role in this outreach to to local audience. I mean our at the ECB of course our comparative advantage is to to reach out to pan European civil society organizations like yours to the European Parliament to no other European institutions, and of course more generally through through our communication on our website, but an important role clearly has to be played by the national central banks. And so they are of course very much on board on this commitment to to have more regular outreach programs with with citizens. I mean the other challenge I would sort of highlight and I think I already mentioned it in the introductory Q&A is comes from this diversity but but is also more general about know the difficulties to to reach out to citizens in a sort of a direct clear coherent easily accessible fashion. So what we learned is that actually the knowledge of the ECB of the central bank of the euro is not very great and so we need to really make more efforts in in explaining really what we are about. And so that's an important another important challenge that hopefully in the coming months and years, we will try to, we will try to to address. These are probably the two to do the two most important challenges that come to my mind. Thank you very much Frank. I can see that we have the next question from Mark Beckman also from positive money. Can just confirm if you hear me well. Yes, we can. Thanks a lot. I just wanted to come back to the last question actually on citizen engagement because we as positive money have been organizing a big outreach project called the European Citizens Bank where you built a platform similar to the conference on the future of the European Union, where we put up content on the monetary policy issues where we organized webinars where citizens could learn about current debates and very organized citizen assemblies where we drew citizens into a one day two day workshop and let them discuss these issues. And so we've been doing that project in several countries and some countries are still to come and be assembling the recommendations that citizens formulate in these assemblies together and so our question would be, if you are in the spirit of your commitment to public engagement, the citizens would be interested in meeting with the citizens who came up with these recommendations and maybe to have a session where we can compare and contrast what the citizens in our outreach program have come up with and maybe the outcome of the new strategic review that you now finalized. Thanks. Thank you. Of course we are aware of your initiative and particularly our communications department very much sort of follows what is going on and I would say that it's very important to have those initiatives because basically I think it can help better understand what the ECB, what monetary policy is about and of course subject to sort of what the communications department is doing. I'm sure we would be happy to interact and to contribute where we can. Thank you. This is just to let you know that we have got a little bit more time in case anyone else would like to take the floor please raise your electronic hands now. Otherwise allow me to take the floor Frank and ask a question. Seeing as the last review was such a long time ago. Do we already know when the next review is going to take place. Yes, in the sense that the governing council in its statement indeed also announced that from now on, it will periodically assess its monetary policy strategy and so initiatives for future ideas and so on will be very useful as as an input for these future assessments and it has announced that sort of the next sort of meeting point will be in 2025 so in about expected to be in 2025 so in about four years time and we very much hope. This is very much in the spirit of continuing this conversation about what we as a central bank are about and how we go about in achieving price stability and achieving the mandate in the best way for the well being of citizens in the new area. Thank you. I can see that we do have one last question and this question comes from Mr Mauricio Vargas from Greenpeace again. Okay, yeah well I take advantage of the chance to ask a second question. It's of course related to your climate action plan and there's another thing which I think we made very unclear and would be very happy if you could help me to understand what's meant with the following sentence in when it comes to the CSPP, the ECB or you are writing that corporates have to be aligned with at minimum EU legislation implementing the Paris Agreement through climate change related metrics or and that's what I really don't understand commitments of the issuers to such goals. I think it's really a good thing that you refer to EU legislation and the Paris Agreement, but I totally don't understand why you implement a sentence racing and on the same level you accept commitment of the issue itself to do to such goals. So what's the meaning of the second part of the sentence? Yeah I'm not sure. I understand sort of the subtleties of those two parts, but I mean the sort of idea in general terms is indeed to make sort of commitments of some of the issuers to do an implementation to the EU legislation that is related to the Paris Agreement to make that sort of an eligibility criteria. Now the way in which one does that again needs to be discussed. No, is it, and again this is will also be sort of a function of making sure there is an awful transition period, but sort of the general idea is really to provide incentives to issuers to basically commit or to align their own plans with respect to climate change with the EU legislation implementing the Paris Court. Thank you very much Frank. I can see that we don't have any more questions so with that I would like to close this seminar and thank you all very much for participating. Thanks to you and your active and lively contributions. We had a very engaging seminar and I'd also like to take this opportunity to say thank you very much to you Frank for taking the time out of your day to explain the new strategy and what it's all about. As usual, we are very interested in hearing your feedback. So if you have one moment will be posting a link to a survey in the chat function. And it should take about two or three minutes to fill out and it would really help us to improve the way we structure these seminars better and to tailor the more tool towards your needs. So we would really appreciate if you could fill out the survey and otherwise there isn't much left for me to say other than to wish you a lovely afternoon and hope for you a nice summer break. If you'd like to get in touch with us in the meantime, please do so by sending us an email at civilsociety at ecb.europa.eu. Thank you very much and have a lovely afternoon.