Following is a transcript of European Central Bank President Mario Draghi’s comments from his monthly news conference in Frankfurt today:
MARIO DRAGHI, PRESIDENT, EUROPEAN CENTRAL BANK: Ladies and gentlemen, the vice president and I are very pleased to welcome you to our press conference. We’ll now report on the outcome of today’s meeting on the Governing Council.
Based on our regular economic and monetary analysis, we’ve decided to keep the key ECB interest rates unchanged. Owing to high energy prices and increases in indirect taxes in some euro area countries, inflation rates are likely to remain above 2 percent for the remainder of 2012. They’re expected to fall below that level in the course of next year and to remain in line with price stability over the policy-relevant horizon.
Consistent with this picture, the underlying pace of monetary expansion continues to be subdued. Inflation expectations for the euro area remain firmly anchored in line with our aim of maintaining inflation rates below, but close to 2 percent over the medium term.
Economic activity in the euro area is expected to remain weak. Although it continues to be supported by our monetary policy stance and financial market confidence has visibly improved on the back of our decisions, as regards outright monetary transactions, OMTs.
At the same time, the necessary process about balance sheet adjustment in large parts of the financial and non-financial sectors, as well as high uncertainty, continue to weigh on the economic outlook. It is essential for governments to support confidence by forcefully implementing the necessary steps to reduce both fiscal and structural - and structural imbalances and to proceed with financial sector restructuring.
The Governing Council remains firmly committed to preserving the singleness of its monetary policy and to ensuring the proper transmission of the policy stance to the real economy throughout the euro area. As we said before, we are ready to undertake OMTs, which will help to avoid extreme scenarios, thereby clearly reducing concerns about the materialization of destructive forces.
Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP contracted by 0.2 percent quarter on quarter in the second quarter of 2012, following flat growth in the previous quarter. As regards the second half of 2012, the available indicators continue to signal weak activity. While industrial production data showed some resilience in July and August, most recent survey evidence for the economy as a whole extending into the fourth quarter does not signal improvements towards the end of the year.
Looking ahead to the next year, the growth momentum is expected to remain weak. It continues to be supported by our standard and non-standard monetary policy measures, but the necessary process of balance sheet adjustment in the financial and non-financial sectors and an even - an uneven global recovery will continue to dampen the pace of recovery.
The risk surrounding around the economic outlook for the euro area remain on the downside. Euro area annual HICP inflation was 2.5 percent in October 2012, according to Eurostat’s flash estimate, compared with 2.6 percent in September and August. On the basis of our current future prices of oil, inflation rates could remain at elevated levels before declining to below 2 percent again in the course of next year.
Over the policy-relevant horizon, in an environment of modest growth in euro area and well-anchored long-term inflation expectations, underlying price pressures should remain moderate. Current level of inflation should thus remain transitory. We will continue to monitor closely further developments in costs, wages, and prices.
Risks to the outlook for price developments continue to be broadly balanced over the medium term. Upside risks pertain to further increases in indirect taxes, owing to the need for fiscal consolidation. The main downside risks relate to the impact of weaker-than-expected growth in the euro area, in the event of a renewed intensification of financial market tensions and its effects on the domestic components of inflation.
Turning to the monetary analysis, the underlying pace of monetary expansion continues to be subdued. In September, the annual growth rate of M3 decreased to 2.7 percent from 2.8 percent in August. Monthly outflows from M3 reflected to some extent the reversal of portfolio shifts into the most liquid components of M3. Accordingly, the annual rate of growth of M1 declined to 5 percent in September, from 5.2 percent in August. At the same time, we have observed a strengthening in the deposit base of banks in some stressed countries, amid improvements in investors’ confidence in the euro area.
The annual growth rate of loans to the private sector declined further to minus 0.4 percent in September from minus 0.2 percent in August. This development was mainly due to further net redemptions in loans to non-financial corporations, which led to an annual rate of decline in these loans of minus 1.2 percent, compared with minus 0.5 percent in August.
The annual growth in MFI lending to households remained unchanged at 0.9 percent in September. To a large extent, these subdued loan dynamics reflect the weak outlook for GDP, heightened risk aversion, and the ongoing adjustments in the balance sheets of households and enterprises, all of which weigh on credit demand.
At the same time, in a number of euro area countries, the segmentation of financial markets and capital constraints for banks restrict credit supply. The recent results of the bank lending survey for the third quarter of 2012 underpin this assessment.
The soundness of banks’ balance sheets will be a key factor in facilitating both an appropriate provision of credit to the economy and the normalization of all funding channels, thereby contributing to an adequate transmission of monetary policy to the financing conditions of the non-financial sector in the individual countries of the euro area. It is thus essential that the resilience of banks continues to be strengthened where needed.
To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. And a cross-check with the signals from the monetary analysis confirms this picture.
Other economic policy areas need to make substantial contributions to ensure a further stabilization of financial markets and an improvement in the outlook for growth. Structural reforms are crucial to boost the growth potential of euro area countries and to enhance employment. Policy action is also necessary to increase the adjustment capacity of euro area economies in order to complete the ongoing process of unwinding existing imbalances.
Visible progress is being made in the correction of unit labor costs and current account imbalances. However, further measures to enhance labor market flexibility and labor mobility across the euro area are warranted. Such structural measures would also complement and support fiscal consolidation and debt sustainability.
As regards fiscal policies, there is clear evidence that consolidation efforts in euro area countries are bearing fruit. It is crucial that efforts are maintained to restore sound fiscal positions, in line with the commitments under the Stability and Growth Pact and the 2012 European Semester recommendations. Full compliance with the reinforced E.U. fiscal and governance framework, including the rapid implementation of the fiscal compact, will send a strong signal to markets and strengthen confidence in the soundness of public finances.
The Governing Council takes note of the European Council conclusions on completing Economic and Monetary Union, adopted on October 18, 2012. In the context of measures to achieve an integrated financial framework, it welcomes in particular the objective of agreeing on the legislative framework for a Single Supervisory Mechanism by January 1, 2013, with a view to the SSM becoming operational in the course of 2013.
We are now at your disposal for questions.
STAFF: OK, as usual, present yourself and the media you work with and one or two questions per media, no more. Let’s start with the block in the middle, the third row. Yeah, the third row, yeah.
QUESTION: Alessandro Merla (ph) with (inaudible) from Italy. Given what you just said about the conditions of the economy and what you said in your speech yesterday, do you expect your projections for the economy to be revised downward next month? And did you discuss a cut in interest rates?
Also, considering the SME lending survey of last week, would you consider further LTRO or possibly the purchase of corporate bonds or corporate ABS?
DRAGHI: Now, certainly the - we’ll certainly monitor the developments in the euro area economy. And we’ll take - we’ll take these developments into account in our projections in December. Certainly, the outlook is being revised. You know the commission came out with their forecasts, and there is a picture of weaker economy, as I had the chance - the opportunity to say yesterday. So all this is bound to influence our projections in December, is bound to be taken into account.
On interest rates, we always discuss our instruments - all instruments of monetary policy, but the Governing Council decided, as I just said, to keep interest rates unchanged. We have not discussed what we are going to do next year, in terms of monetary policy.
STAFF: Yes, please, your neighbor? Same row.
QUESTION: (inaudible) with (inaudible) is the ECB satisfied with the degree of relief that the mere announcement of the OMT has already brought to the markets in the current environment would then theoretically be happy to never buy a single bond? Or do you think that the rest of the euro zone would benefit from a Spanish bailout request by giving you the opportunity to show your resolve and, thereby, clear the apparent transmission mechanism?
My second question is, on interest rates, I know you said you didn’t make a decision on the future of - on the main refi rate. Governing Council member Ewald Nowotny said that, for him, it’s - it’s negative deposit rate, should you decide to cut interest rate, doesn’t appear to be a realistic prospect to him. Is that something that is an assessment that’s shared on the Governing Council? Thank you very much.
DRAGHI: You’re welcome. The - we haven’t discussed about the second question. On the first question, we’re certainly take note the - that since the OMT announcement, there have been a series of market improvements that I will just quickly list.
First of all, we have a return of flows from the rest of the world, in particular from U.S. money market funds, which was plus 16 percent in September month-over-month, for the third consecutive month since the announcement. So even though overall continues to be a small exposure with respect - with respect to euro area banks, with respect to what it was in last - at the beginning of last year, it’s gone up.
Also, the - this form of lending has shifted considerably from secure to unsecured lending. Only 30 percent was secured, and it’s the lowest data since March. And this is a positive sign.
Another positive sign is that there has been some limited bond - renewed bond - dollar bond placements by euro area institutions. There has been moderate pickup in corporates issuance. There has been - there have been, as I had opportunity to comment on other occasions, there have been a few issues of sovereign bonds by Ireland and Portugal.
The funding plans of two large sovereigns like Italy and Spain are quasi-completed, if not completed. And the share of foreign holdings of these bonds, bonds by Spain and Italy, has gone up, which is also something that we had not seen for a while.
Finally, the TARGET2 balances figure, which is another sign of, I would say, the - how the imbalances in the euro area are developing, that figure has been stabilized now for two or three months, which is already another good sign. So all this is encouraging.
And by itself, this has certainly been equivalent to a further expansion, in a sense, of monetary policy, because the financial market’s conditions are considerably easy now than they were - considerably easier now than they were two or three months ago.
On the Spanish request, I will decline any comment. It’s entirely in the hands of governments to decide about this. The conditions of OMT are clear. And we stand ready to act. OMT is, as you know, a fully effective backstop that is devised to remove the tail risk from the euro area, and we stand ready to act. Thank you.
STAFF: Your neighbor, Gabi, yes.
QUESTION: Thank you. Gabi Thesing from Bloomberg News. I do need to press you again on Spain, unfortunately, because the markets are - Spanish bond yields have gone up again, so the longer - and you’re nodding - the longer Mr. Rajoy hesitates - would you like Spain to ask for aid?
And my second question is, do you consider financing conditions appropriate across the euro area right now? Or do you - do the current Italian and Spanish spreads still contain a redenomination risk? Thank you.
DRAGHI: Thank you. Again, I answer - you keep on pressing, but I keep on answering the same way. It’s entirely up to Spain and to the Spanish government to take this decision. It’s not - it’s not up to the ECB.
As I said, the ECB did say this many, many times. The ECB has produced the OMT. The OMT is a fully effective backstop mechanism that is devised to remove the tail risks while at the same time not removing the incentives for fiscal discipline and delivering price stability. And that’s there.
And the conditions for accessing that are also very, very clear. Now, that’s then the rest. Now the ball is completely in the courts of the governments, not - not with the ECB.
Now, on the financing conditions, more than focusing on the levels of the - of the spreads or the interest rates, I think one should look at the fragmentation of the euro area. So when we talk about financing conditions, for example, financing to the SMEs, like the question before was asking, are we satisfied with the financing conditions? No, we are not at all satisfied. We are observing a fragmentation of the euro area, re-nationalization of the banking systems, a difference in costs of funding that go beyond the fundamentals, and, therefore, we have - our priority now is to repair the monetary policy transmission channels so that our monetary policy will actually deliver - will be able to deliver price stability. Thank you.
QUESTION: (OFF-MIKE) but you can only - you’ve always said you can only fix the transmission mechanism if the OMT is activated. Without a Spanish request, then -
DRAGHI: No, no, no. OMT helps to fix the transmission mechanism. There are many other reasons why a transmission mechanism is not working. First and foremost, the lack of appropriate economic policies that are now in the process of being fixed, but let’s not forget how we found ourselves in this situation. We know that this is a bad equilibrium where, until three months ago, we had self-fulfilling expectations, self-feeding expectations.
At the same time, these countries have found themselves in this bad equilibrium because of the policy mistakes of the past or the lack of policy altogether. So that - the origin of this fragmentation in the - in the financial markets in the euro area, we have basically policy mistakes, and they have to be corrected. Thank you.
STAFF: Your neighbor, Eva Kuehnen, and then behind, yeah.
QUESTION: Eva Kuehnen from Reuters. Mr. Draghi, the Spanish prime minister, Mr. Rajoy, has said that one of the reasons why he’s taking his time with a request for a European bailout is because he wants assurance that the ECB intervention will actually bring down his country’s borrowing costs. Could you - can you give Mr. Rajoy this assurance today?
DRAGHI: I think I’ve answered this question before. I think I’ve - the first - there is a general statement. The way the OMT has been designed foresees, as we’ve discussed many times, that as a necessary condition the country should sign with an ESM program, and a role of the IMF will be actively sold and would be welcome.
But this is the necessary condition. It’s not also the sufficient condition, so the Governing Council will take the final decision in total independence.
And in so doing, it cannot give any assurance ex ante, because we have to make our monetary policy assessment, we have to make an assessment of the actual state of fragmentation of the financial markets. So I think the - there isn’t any automatic quid pro quo.
We know that the mechanism is a fully effective backstop, and it’s in place, but it’s up to the countries to do all the right steps so that this mechanism can be activated. Thank you.
QUESTION: And for my second question - sorry - the second question is on Greece. Greece yesterday, last night, managed to approve another - a new austerity package. Is this enough? And will the ECB - would it be willing to help make Greece’s debt burden more sustainable now? And if so, how - what could you do?
DRAGHI: The ECB and the Governing Council certainly welcome the outcome of the vote yesterday. It’s a very important step that the Greek government and the Greek citizens have undertaken. It really represents progress, especially if one compares the situation with what it was a few months ago.
Another vote is expected - is waited on Saturday on the budget. The governments will discuss the Greek situation next week. It’s euro group (ph) is foreseen. The center - the ECB assures price stability and pursues the restoration of monetary policy transmission channels, but cannot do monetary financing. Thank you.
STAFF: Thank you. Yes, please, behind you.
QUESTION: (inaudible) Dow Jones Wall Street Journal. Next week, Greece will have to refinance 5 billion in T-bills, and that’s likely to be done again through emergency lending assistance. How much longer is the ECB going to tolerate that sort of behavior? And also, could you please explain to me why that’s not a form of monetary financing?
And, second, do you see evidence that this sort of funding (inaudible) funding is catching up elsewhere, maybe in Cyprus? And are you worried about this, especially in light of very tight fiscal policies?
DRAGHI: Well, we - we consider this financing to be temporary. We don’t consider emergency lending assistance to be monetary financing. It’s considered amongst our instruments. We look with - we look with - certainly with great attention to developments in Cyprus. And, again, however, the ultimate response to these situations is in the government’s actions. It’s not with the ECB. Thank you.
STAFF: Thank you. The next question on the sixth row. The one who - yeah, please.
QUESTION: (inaudible) Mr. Draghi, two questions. One about inflation expectations. After the OMT was announced in September, we saw gold prices rising very strong. Just in September, we had 3 billion euro going into gold ETFs and ETCs (ph). Is that a sign of speculation or of increasing - increased inflation expectations?
And the second question, if I may, you said that there’s visible progress in the collection (ph) of unit labor costs. Most economists, I know, they say unit labor costs are not a good way to measure competitiveness, because we have this unemployment productivity. They say one should look at the GDP deflators, because - and there we do not really see a big progress. Are they right or wrong? Thank you.
DRAGHI: Well, on gold prices, the thing you see is - the thing you see is exactly what you see, namely an increase in gold prices. Now, what - why should this depend on the OMT is kind of a mystery to me.
We are constantly looking at the inflationary expectations over several horizons, over several time spans. And no matter what time span we look at, we continue to see that they are solidly anchored.
So to ask whether a price of a specific asset forecasts inflation - an increase in inflation rate is always a very, very risky question. You see, I mean, you see asset prices going up and going down. And to infer that from - from an increasing price of one asset you’ll have inflation, and you’ll have inflation because of the OMT, which hasn’t created yet any liquidity, is really - I mean, it means really walking very fast.
On the - on the improvement in unit labor costs, yes, there has been an improvement in unit labor costs in several countries. This may certainly be partly the consequence of an increasing productivity, which is, as the economies that you mentioned say correctly, which is - which could be cyclical due to the fall in economic activity in these countries. However, we also observe an improvement in current account balances by these countries.
So - and you are also right when you say that, in spite of the unit labor cost changes, in some countries, we don’t observe comparable changes in the GDP deflator. And that may be due to other reasons. For example, in one country, we observe a fall in unit labor cost. We don’t observe GDP deflator changes. For example - or HICP inflation changes, because of energy prices remain very high. The other reasons have more to do with the inertia that components of value-added show in adjusting to the new situation. Thank you.
STAFF: Thank you. Your neighbor and then the row in front, yeah. Your neighbor.
QUESTION: (inaudible) I’ve completely different question concerning collateral framework rules. I just want to know, how exactly do you want to make sure that national central banks might not again bend the framework rules of the collaterals according to their needs? How do you want to make sure that the credibility of the ECB as a risk manager won’t be hurt? Thank you.
DRAGHI: Thank you. Let me first make a clarification, because there has been a lot of - a lot of press on this point in the last - in the last week. First clarification is that it’s not - it’s just purely factual. It’s not 80 billion, the amount of - nominal amount of collateral being posted, but 10.
The second clarification is that all this had no impact at all on our lending. And so nobody received more than they should have received because of this mistake, because it was a mistake. The impact of this is zero, but we take this mistake very seriously. And so the Governing Council has mandated the Eurosystem audit committee, which is chaired by Governor Liikanen, to assess the implementation of the collateral framework in the Eurosystem. And we will have an initial assessment of our - of this at our next Governing Council, and then we will discuss whether further analysis or further action is needed. And I’ll keep you posted on that. Thank you.
STAFF: The row just - yes, Brian Blackstone.
QUESTION: I want to go back to the economic outlook. You’ve mentioned recently that there are some deflation risks in some European countries. You’ve talked about unemployment being deplorably high. Why aren’t you cutting rates? Why aren’t you considering some kind of quantitative easing? Isn’t that an appropriate role for monetary policy?
And I want to - second question is back to the Greece issue. You’ve said you won’t do anything that’s monetary financing, but are there things that you could do that would not cross that line? Specifically, could you sell your bonds at cost to Greece, to the ESM? Could you somehow redirect your profits back to Greece? Do you have options that - or are you just telling the governments that you have no role in this whatsoever? Thank you.
DRAGHI: Well, let me first address the correct - about deflation. I never mentioned deflation. Deflation in - is a generalized fall in price level across sectors. And it’s self-sustaining. And so we - so far, we have not seen signs of deflation, not only at a euro area level, but also at country level.
We should also be very careful about not mixing what is normal prices readjustments due to the restoration of competitiveness in some of these countries. They necessarily have to go through a readjustment of prices. With - we shouldn’t confuse this readjustment of prices, which actually are welcome, with - with deflation.
We see that the - basically, we see the price behavior in line with our medium-term objectives. So we see price stability over the medium term.
Also, consider that - when we come at the monetary policy, consider our monetary policy is already very accommodative. Consider that not only, I mean, the very low level of interest rates, consider that interest rates are really - real interest rates are negative in - in a large part of the euro area. Consider that we’ve taken several measures in the course of this year, starting if we go back just one year, just think about how many things we’ve done.
Several cuts in interest rates, halving the reserve ratio, two LTROs for a gross amount of a trillion, and so on and so forth. We’ve gone - we’ve gone through this together many times, so I will not repeat. And then we had the OMT announcement, which by itself produced an easing of financial market conditions.
But we certainly continue to monitor economic activity, and we stand - we stand ready to act. As I said before, we stand ready to act with the OMT once the prerequisites are in place, but we also stand ready to act with the rest of standard normal monetary policy instruments. Thank you.
STAFF: Thank you. Your -
DRAGHI: I’m sorry. You had another question?
QUESTION: On Greece.
DRAGHI: Oh, on Greece. On Greece, we certainly - we cannot do monetary financing. I repeat this. On the profits, the profits on the SMP holdings, we have already decided this during the first - at the time of the first PSI, because what happens is that these profits naturally accrue to the central banks that are members of the euro system.
And then the central banks in their independence or according to their legislation will transfer these profits to the governments. And then it’s up to the governments to decide whether they want to reuse these profits for Greece, and the governments actually committed themselves to do so at that time.
DRAGHI: The ECB is by and large, as you say - is by and large done.
QUESTION: By and large done?
STAFF: OK. Your neighbor and then to block one.
QUESTION: (inaudible) still relating on the SMP profits, just trying to make a fair estimate of the scale of this profit, assuming that you’re having 6 billion on your balance sheet, bought at 75 percent of face value. And getting interest income of 5 percent over five years, that will mean 30 billion profit. Is that a fair estimate of the profit of your SMP holding?
DRAGHI: I’m very sorry, but I’m in a position - I’m not able to answer this question. I can provide you with an answer later. But, I mean -
QUESTION: (inaudible) provided that it’s being paid back in full, is it a fair (inaudible)
DRAGHI: Yeah. Yeah. But I don’t have an answer now.
STAFF: OK, let’s go to block one, third row, please.
QUESTION: Michael (inaudible) the Financial Times. Mr. Draghi, two questions. First of all, just, again, on inflation, you said today that the risks were balanced on the upside and the downside. I think when you were talking behind closed doors to general members of parliament, you said the other day, in the text of the speech that was released, anyway, that there was, if anything, a downside risk. So could you just clarify which is it? Is it balanced or is it a downside risk?
And then second question on LTROs. Your neighbors in the tower block (ph) just over there in Commerzbank said this morning that they’re going to - they plan to hand back their LTRO funding at the end of the year, as soon as they can, basically, essentially because they don’t seem to be able to find anything useful to do with it. It costs them 0.75 percent. They’re just parking it with the Eurosystem at 0 percent. Is that a worrying sign? I mean, should these banks be finding companies to lend that money to or are you relaxed about a sudden end to all these LTRO borrowings? Thanks.
DRAGHI: Thank you. No, on the - on inflation, on inflation, I - I think I always said that the - at least in the recent past that risks are broadly balanced, because on one hand, you have the downside risks that come from the weak level of economic activity and high unemployment. On the other - on the other side, you have the upside risks that come from oil - energy prices and the widespread use of indirect taxation, especially VAT, by countries that need to consolidate their budgets. So the two things by and large balance themselves, and this is the assessment that I would still maintain today.
On the LTRO, no, it’s not - it’s not necessarily a matter of concern. Actually, in a sense, it’s the best response to all those who were saying, oh, you are flooding the world with liquidity. Now, you see that this is not happening. You see that, in fact, money’s coming back, and the balance sheet of the ECB will shrink down correspondingly. And no consequence on inflation had taken place since when we decided the LTRO way back in January, in December of last year.
So now, whether - whether banks return LTRO because they don’t lend it because of risk aversion or because of demand for - or credit demand is weak, I am not in a position to say today, but certainly this must be the two reasons. Either they’re fearful to lend, because they are - here we’re talking about banks that don’t have capital constraints, of course, assuming that they don’t have any capital constraints, banks don’t - don’t lend, because - either because their risk aversion is too high or because there is no demand.
So this could be a sign of either - of either of the two factors. The important thing was that - with the LTROs is that we removed - we removed, again, tail risks coming from the lack of funding that was taken - would have taken place, would have happened in the first quarter of this year. That’s what - and the purpose has been achieved. The objective has been achieved.
STAFF: OK, let’s go back to this block (inaudible)
QUESTION: (OFF-MIKE) settle the OMT horse (ph) from the other side. You said the OMT was there for - to avoid extreme scenarios, extreme risks.
QUESTION: Could you foresee a scenario, an extreme scenario where the OMT would be triggered without the conditionality in place or without part of the conditionality in place because, as I said, it might be too extreme a scenario? And the other thing is, after yesterday’s speech and also after the statements today, the markets are taking the view that we’re going to see a rate cut next time around. Would you say the markets are grossly misguided?
DRAGHI: Well, on the second question, I mean, as you know, I can’t - I can’t comment on the second question. On the first question, you’re asking - you’re asking me whether - could there be an OMT without conditionality? The answer is no. Thank you.
STAFF: OK, let’s go to the block in the middle, the second row, please, and we will take the two last questions before.
QUESTION: Thank you (inaudible) Mr. Draghi, under the pressure - I have a concerning euro zone and the U.S. (inaudible) just had the elections. Under pressure of markets in Europe, the reform process started two years ago in Italy and in Spain. In U.S., it is told that there the reforms couldn’t start, they are all intentioned - whether they will start now. What do you think? Is the - in your eyes, the potential of Europe catching up the states? Do you think that Europe can have a comeback, sort of comeback in the near future?
DRAGHI: What - what I think - what I can say is that the - both the euro area as a whole and the individual countries forming the euro area - and I wouldn’t have made this statement a year ago, by the way - both - both of them have - have the - a fundamental position which is way more balanced than the U.S., but also other countries, Japan or the U.K.
We have - the euro area has a current account balance which is basically in balance, zero. Debt - both as corporate debt and household debt - is relatively low, all over the euro area. Saving ratios are high. As I was saying before, unit labor costs are on their way down. The fiscal consolidation that has taken place all over the euro area is amazing. And when we look at the other parts of the world, it’s not so amazing at all.
So debt-to-GDP levels are on their way down everywhere, even in the countries which have the highest ones. So all this is basically - poises the euro area for a recovery, which should be - probably is going to be slow, probably is going to be gradual, but it’s also going to be solid. And looking at the - exactly, at these fundamentals.
So what we have to overcome is now the - sort of the fragmentation. That is our major challenge ahead. And I think we’ve - we’ve collectively made significant progress on that - on that route. Thank you.
STAFF: Thank you. Let’s take the last question in the block number one, the fourth row. The two last questions, yeah, this one.
QUESTION: (inaudible) two questions, if I may. Mr. Draghi, you said before that monetary policy stance is very - very accommodative at this time. And you mentioned a bunch of measures take into - since one year. So my question is, is it a time or absolutely not the time to think about the moment of an exit of the strategy? Do you prepare to this maybe in your mind? Or is it something that is absolutely not present at the time?
And second question, to the - the supervisory mechanism that (inaudible) the ECB will give a formal legal opinion, so that is subdued in the next time, I guess, but at the time, could you maybe give us an opinion regarding information that Paris and Berlin is - are in favor of a woman chairing this authority? And maybe you have your opinion on this. Thank you.
DRAGHI: OK. On the first question, it’s - we look at price stability, and we will decide our strategy and the timing of our exit depending on how we see price stability over the medium term. So far, we see no reason to change our monetary policy, looking at the price stability over the medium term.
The - on the second point, I would say the following. Gender considerations are close to our minds and our hearts, both for the executive board and for myself personally. We understand the European Parliament with - where we always had an excellent relations, has valid concerns about this. And we certainly have - I mean, we’re (inaudible) open minds and open hearts with respect to this.
Now, this has to do with - with your - my answer to your point about the supervisory mechanism, who might share the supervisory mechanism. So the only thing is just I want to restate that gender concerns are very important, and actually the ECB has been quite active on that. Think, let me just go through, if I can, some of the things we’ve done, because I - to show you how we all care about this and - we - we’ve been active as far as both recruitment success rate, and we are doing fairly well at staff level. We are not doing well at management level, and so we have to improve there.
And we’ve launched a series of actions there, which I think they’re going to bear some fruit, and we know we have to improve at management level. Thank you.
STAFF: The last question, the same row, please. Yeah.
QUESTION: (inaudible) with (inaudible) you said the original fragmentation of - financial fragmentation is policy mistakes. And you said structural reforms are needed. Are you satisfied with the reform path and the reform speed you see in Spain and Italy? Or would you expect more and faster reforms?
DRAGHI: Well, I think this is an important question. In answering to this question, I would - I would ask you to take a - say, not a - not a medium-term, but even a short-term perspective. Compare the situation today with what it was not even a year ago. And the conclusion is unavoidable. There has been substantial progress.
Is the task finished? Not at all. Not at all. There is a lot more to do on the - obviously, on the fiscal consolidation path, but more and more important - significantly, as time passes by, on the structural reforms ground.
QUESTION: But is it fast enough?
DRAGHI: Again, now, to - to give a sense of speed, it depends from which perspective, because if you compare with the speed that these countries had in reforming themselves in the previous five years, then you are bound to say it’s very fast. If you ask me, will ever be fast enough for - let me put it this way. The faster it is, the sooner the financial market conditions in Europe will return normal.
DRAGHI: That’s a point.
DRAGHI: I’m sorry. Please.
QUESTION: I take your perspective, because you said one of the main - the original - the main problem is the lack of structural reforms.
QUESTION: And you can’t solve the problem. It’s the problem of the countries.
QUESTION: So it’s from your perspective you have to ask, is it fast enough, fast enough to rebuild the financial conditions?
DRAGHI: Also, you know, the speed of structural reforms, when you ask about the speed, we can desire any speed, but it’s actually - ultimately it will be the citizens of these countries that will have to decide what is the speed.
They should know that these things, these structural reforms have to be done. They are unavoidable. They are necessary. And ultimately, eventually, prosperity and growth and job creation will come out of these reforms.
The actual pace of these reforms is a combination of many factors, but, first and foremost, the political realities of these countries. But as I said, the sooner this process is brought forward, the quicker will be the normalization of the euro area, because let’s not forget that the financial conditions in euro area started worsening after the financial crisis, but because they found very unsatisfactory policies in place in many countries. So, thank you.
STAFF: Thank you. As mentioned earlier, the president will now make an announcement regarding the euro banknotes. And we will then show a very short video and distributor detail press kit. You will have all the details for that.
President, the floor is yours.
DRAGHI: Yeah, but before I do so, I just want to go through this, the partial answer I gave about gender diversity, because I think - I think it’s actually quite important that I do give some time to this. And as I said, I said - I said that we’re doing very well at staff level, but we should improve at management level. And for this, I said that we’ve launched a number of initiatives to support and encourage female staff to pursue management functions.
And I say mentoring, diversity task force, use of external counselors, diversity and recruitment panels, and also child minding (ph) facilities. And so, as I said before, my sense is that these initiatives are bearing fruit.
Now, coming to the banknotes, let me read this statement. I am pleased now to - I am now pleased to be able to announce that the European Central Bank and the national central banks of the Eurosystem are to introduce a second series of euro banknotes. This will be called the Aeuropa (ph) or Oeuropa (ph) or Europe Series (ph), as it will - be it’s written A-Europa (ph), as it will include a portrait (ph) of A-Europa (ph), a figure from Greek mythology and the origin of the name of our continent within the watermark and the hologram of the new banknotes.
The Aeuropa (ph) series bank notes will be introduced gradually over several years, starting with the new five euros banknote in May 2013. This series has benefited from advances in banknote technology. To make the banknotes even more secure, their security features have been enhanced. Three of these new security features that appear on the five euro banknote, the portrait watermark, portrait hologram, and the emerald number will be revealed today.
The first series will initially circulate alongside the new bank notes, but will gradually be withdrawn and eventually cease to be legal tender. The date when this occurs will be announced way in advance. However, the banknotes of the first series will retain their value indefinitely, and it will be possible to exchange them at the Eurosystem national central banks at any time.
The ECB will be revealing the details of the new euro - five euro banknote in two phases, starting today with three of the new security features that it contains. This will allow the public to start familiarizing themselves with these three new security features.
Also, in order to raise public awareness of this series, the Eurosystem will be conducting an information campaign across the euro area in 2013.
I would also like to take this opportunity to thank all the Eurosystem staff who has been involved in the preparations for the new banknotes. Now pleased to present a short film showing three of the new security features embedded in the new five euro banknote. Thank you.
STAFF: Thank you. And I will take one or two maximum question -
(BEGIN VIDEO CLIP)
(END VIDEO CLIP)
STAFF: (OFF-MIKE) distributed to you right now. And if you have one or two question maximum, the vice president will be happy to answer. Do you have any question at this stage? No question? Yes, one?
DRAGHI: (OFF-MIKE) had a question.
DRAGHI: (OFF-MIKE) question.
STAFF: Yeah, sure.
DRAGHI: What’s the sense of this movie? I mean, it’s just -
DRAGHI: Listen, Vice President (OFF-MIKE) question.
(UNKNOWN): I am just reflecting, the same as you, because I just saw the film. But, in fact, the purpose is to show the three new security features that we decided to disclose today. I take the opportunity to say that, on the 10th of January, there will be the disclosure of the full note, the full new five euro note, in the - in the archaeological museum here in Frankfurt.
And we will show the Greek vase dated for more than 2,000 years ago that belongs to the Musee du Louvre. We will show the vase from where the portrait of Europa (ph) was taken. So there will be an exhibition, and the full disclosure of all the other features of the note. Today it’s just three features, and that’s what was shown in the film, the hologram, the watermark, and five number changing color that you saw. That’s it.
STAFF: Thank you. Thank you very much.