Draghi signals support for Central Bank’s mortgage cap

European Central Bank president Mario Draghi has signalled his support for the Central Bank’s move in recent years to cap mortgage lending, as the onus falls on national authorities to act given that property prices are increasing only in some parts of the euro zone.

Responding to questions at an event in Trinity College Dublin on Friday, Mr Draghi said so-called macro-prudential measures, introduced by the Central Bank in 2015 and refined last year, are the “sort of measures” needed to address price movements in individual markets, rather than ECB monetary policy.

Speaking later to a smaller gathering of students after delivering a speech on youth unemployment in Europe, Mr Draghi said the ECB had not detected any signs of a property bubble in Europe, as this would require a spike in credit growth.

“As a matter of fact, credit has recovered in the last four years now but is still pretty subdued” compared with historical trends, Mr Draghi said.

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Irish house price inflation was running at an annual rate of 12.3 per cent in July, as supply continues to fall well short of demand in a recovering economy. Mr Draghi said fast-rising house prices are not “systemic” across the euro zone.

In considering whether a fresh bubble may be forming, “we ask ourselves how much is it due to low interest rates, to easy mortgages, to our monetary policy,” Mr Draghi said. “And the answer is quite often down to factors like supply shortages, building permits or lack of social housing.”

His comments come as the Central Bank prepares for its annual review of its loan-to-deposit and loan-to-income limits.

Jobless youth

Mr Draghi also said European governments must up their efforts to tackle youth unemployment. The effects of the financial crisis had been felt “disproportionately” by young people.

In his first public speech in Dublin as ECB president, Mr Draghi said Ireland was one of the countries that has made “some progress” in reducing the youth unemployment rate, which had tripled between 2007 and 2013 to 30 per cent., It has since fallen by more than 13 percentage points.

“We have seen how, in several countries, the weight of the crisis has fallen disproportionately on the young people, leaving a legacy of failed hopes, anger and ultimately in the values of our society, in the identity of our democracy,” Mr Draghi said.

“To address structural causes of youth unemployment, a uniform degree of protection among workers, flexible labour arrangements, effective vocational training programmes, a high degree of trade openness and support to reduce the social cost of mobility are all necessary conditions,” he said.

Youth unemployment rose nine percentage points in the euro zone between 2007 and 2013, twice the pace of the overall jobless rate. The problem was worse in countries such as Greece, Spain and Ireland, Mr Draghi noted.