European Central Bank President Draghi News Conference (Text)

Following is a transcript of European Central Bank President Mario Draghi’s comments from his monthly news conference in Paris 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. I would like to thank Governor Noyer for his kind hospitality and express our special gratitude to his staff for the excellent organization of today’s meeting of the Governing Council. We will now report on the outcome of today’s meeting, which was also attended by the commission vice president, Mr. Rehn.

Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. Incoming information and analysis have further underpinned our previous assessment. Underlying price pressures in the euro area are expected to remain subdued over the medium term.

In keeping with this picture, monetary and, in particular, credit dynamics remain subdued. Inflation expectations for the euro area continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to 2 percent over the medium term.

At the same time, real GDP growth in the second quarter was positive, after six quarters of negative output growth, and confidence indicators up to September confirm the expected gradual improvement in economic activity from low levels.

Our monetary policy stance continues to be geared towards maintaining the degree of monetary accommodation warranted by the outlook for price stability and promoting stable money market conditions. It thereby provides support to a gradual recovery in economic activity.

Looking ahead, our monetary policy stance will remain accommodative for as long as necessary, in line with the forward guidance provided in July. The Governing Council confirms that it expects the key ECB interest rates to remain at present or lower levels for an extended period of time. This expectation continues to be based on an unchanged overall subdued outlook for inflation extending into the medium term, given the broad-based weakness in the economy and subdued monetary dynamics.

In the period ahead, we will monitor all incoming information on economic and monetary developments and assess any impact on the medium-term outlook for price stability. With regard to money market conditions, we will remain particularly attentive to developments which may have implications for the stance of monetary policy and are ready to consider all available instruments.

Let me now explain our assessment in greater detail, starting with the economic analysis. Following six quarters of negative output growth, euro area real GDP rose quarter on quarter by 0.3 percent in the second quarter of 2013, also supported by temporary factors related to usually adverse -- unusually adverse weather conditions in some euro area countries earlier this year.

Developments in industrial production data point to somewhat weaker growth at the beginning of the third quarter, while survey-based confidence indicators up to September have improved further from low levels, overall confirming our previous expectations of a gradual recovery in economic activity.

Looking ahead, output is expected to recover at a slow pace, in particular owing to a gradual improvement in domestic demand, supported by the accommodative monetary policy stance. Euro area economic activity should, in addition, benefit from a gradual strengthening of external demand for exports.

Furthermore, the overall improvements in financial markets seen since last summer appear to be gradually working their way through to the real economy, as should the progress made in fiscal consolidation. In addition, real incomes have benefited recently from generally lower inflation. This being said, unemployment in the euro area remains high, and the necessary balance sheet adjustments in the public and private sectors will continue to weigh on economic activity.

The risks surrounding the economic outlook for the euro area continue to be on the downside. Developments in global money and financial market conditions and related uncertainties may have the potential to negatively affect economic conditions. Other downside risks include higher commodity prices in the context of renewed geopolitical tensions, weaker than expected global demand, and slow or insufficient implementation of structural reforms in euro area countries.

According to Eurostat’s flash estimate, and broadly in line with expectations, euro area annual HICP inflation decreased in September 2013 to 1.1 percent from 1.3 percent in August. On the basis of current futures prices for energy, annual inflation rates are expected to remain at such low levels in the coming months.

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. Medium- to long-term inflation expectations continue to be firmly anchored in line with price stability.

The risks to the outlook for price developments are expected to be still broadly balanced over the medium term, with upside risks relating in particular to higher commodity prices, as well as stronger-than-expected increases in administered prices and indirect taxes and downside risks stemming from weaker-than-expected economic activity.

Turning to the monetary analysis, data for August indicate that the underlying growth of broad money, M3, and, in particular, credit remained subdued. Annual growth in M3 continued to be broadly stable at 2.3 percent in August, compared with 2.2 percent in July. Annual growth in M1 remained strong, but decreased to 6.8 percent in August, from 7.1 percent in July.

Net capital inflows into the euro area continued to be the main factor supporting annual M3 growth, while the annual rate of change of loans to the private sector remained weak. The annual growth rate of loans to households stood at 0.4 percent in August, broadly unchanged since the turn of the year. The annual rate of change of loans to non-financial corporations was minus 2.9 percent in August, compared with minus 2.8 percent in July. Weak loan dynamics for non-financial corporations continue to reflect primarily their lagged relationship with the business cycle, credit risk, and the ongoing adjustment of financial and non-financial sector balance sheets.

Since the summer of 2012, substantial progress has been made in improving the funding situation of banks and, in particular, in strengthening the domestic deposit base in a number of stressed countries.

In order to ensure an adequate transmission of monetary policy to the financial -- to the financing conditions in euro area countries, it is essential that the fragmentation of euro - - euro area credit markets declines further and that the resilience of banks is strengthened where needed. Further decisive steps to establish a banking union will help to accomplish this objective.

To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.

As regards fiscal policies, euro area countries should not unravel their efforts to reduce deficits and put high government debt ratios on a downward path. The draft budgetary plans that countries will now deliver for the first time under the two-pack regulations need to provide for sufficiently far-reaching measures to achieve the fiscal targets for 2014.

Governments must also decisively strengthen efforts to implement the needed structural reforms in product and labor markets. These reforms are required not only to help countries to regain competitiveness and to rebalance within the euro area, but also to create more flexible and dynamic economies that generate sustainable economic growth and employment.

We are now at your disposal for questions.

STAFF: To enable as many questions as possible, we’ll take two per person, and we’ll start with Ingrid Melander from Reuters.

QUESTION: Thank you. It’s about the euro exchange rate. It’s as high relative to the dollar or on a trade-weighted basis as it was in February, when you warned that the strong euro could have downside risks to recovery. I was wondering why there was no warning this time and what you think of the current exchange rate.

DRAGHI: As you know, the exchange rate is not a policy target for the ECB. The target for the ECB is medium-term price stability. However, the exchange rate is important for growth and for price stability. And we are certainly attentive to these developments.

Thank you.

STAFF: Michael Steen, FT.

QUESTION: Hi, Mr. Draghi. The -- you said in your introductory statement that -- in terms of money markets, you were prepared to use all available instruments. Why not then cut -- narrow the corridor between the refinancing rates and the deposit rate, as I think Mr. Pratt suggested in an interview with Les Echos on the 16th of September?

And the second separate question about the single supervisory mechanism, you’ve said in the past that you’re confident that there will be backstops in place before the ECB formally takes over. It strikes me we’re not quite there yet. Can you outline how that is actually going to happen by next October? Thanks.

DRAGHI: Thank you. Now, you’re asking in an indirect way whether we discussed an interest rate cut, which would narrow the corridor. In fact, I mean, there was a discussion, and as last time, some governments -- some governors observed that improvements in the economy would not justify this discussion, but other governors believe that the discussion was warranted. In the end, we decided to leave interest rates as -- at the present level.

Having said that, let me just -- on the broader developments of liquidity, let me just restate what I said in parliament, in the European Parliament, because it’s quite telling. Well, I can’t find the precise quote, but basically -- basically, what I said is that we have -- we are ready to use all available instruments, including an LTRO, to make sure the short-term money market rates development are in line with our medium-term assessment of price stability. And so as I said, we have a vast array of instruments to this extent. And we exclude no option in order to address the needs as it is most appropriate.

On the backstops, that’s another thing -- that’s another thing that quite astonishes me. As the doubts that have been expressed about whether backstops -- national backstops will be in place by the time we start our SSM. In fact, there is an explicit reassurance about this in the conclusion of the last European Council, where there’s an explicit reference to national backstops.

But let me add something that is a more recent development, where I can quote the vice president of the European Commission on this point. And it basically said that since capital injections would normally be regarded as one-off measures, they would normally not count against the member state in the context of the excessive deficit procedure.

So I think this is quite -- it’s quite relevant, because it shows the general determination to have the backstops in place by the time the SSM would take charge. Thank you.

STAFF: Brian Blackstone, Wall Street Journal?

QUESTION: Brian Blackstone with the Wall Street Journal. I just wanted to ask you a little bit more about inflation. So the inflation rate now is 1.1 percent. Your own staff forecasted for 1.3 percent next year. How is this consistent with any definition of price stability for the -- for the ECB? And are you at risk of -- of underdelivering on your target?

And another question on interest rates. You have this easing bias in place since July. You seem to be talking about interest rate cuts monthly. What would it take to move the ball forward and actually deliver an interest rate cut, which would seem to be justified, at least on inflation grounds? Thank you.

DRAGHI: Thank you. On your first question, the -- the inflation path is developing as was expected. Our baseline scenario is confirmed, and we see inflation as remaining subdued on the low level -- on the low side, on the very low side of 2 percent, and we see this as extending into the medium term.

In -- we view this as a combination of several factors, energy prices, the tax increases -- the indirect tax increases which are there, at least for the time being, food prices, but also certainly the appreciation of the exchange rate and the general economic conditions.

So we will be monitoring closely these developments. And we’ll have to look through the medium term in order to assess the outlook. And here I answer to the second question, as well, and decide about further action on the front of interest rates, or, as I said before, on any other instrument that is available.

STAFF: (inaudible)

QUESTION: (inaudible) Business. Sir, you say -- you said substantial progress has been made in improving the founding situation of banks. For eurozone bank, how to treat sovereign bonds in its next balance sheet test? Some governors of central banks in eurozone can be opposed to writing down the value of these bonds to reflect their risks.

DRAGHI: Communication on the -- precise communication on the asset quality review will be -- will be given in the second part of the month of October, in the second half of October. Let me say that current opinions about -- about different riskiness of government bonds are what they are, namely personal opinions, which address a clear issue, different riskiness of government bonds. But let me also say that no action is being envisaged or no policy has ever been discussed by the Governing Council to this extent. Thank you.

STAFF: Joanna Treeck, Market News?

QUESTION: Mr. Draghi, to what extent could the harmonization of definitions and provisioning for nonperforming loans as part of the asset quality review increase fragmentation? And which countries might be particularly affected as a result of that?

My second question is, what are the chances that credit is actually going to improve before the conclusion of the asset quality review and the stress tests?

DRAGHI: I’m sorry. What is the -- what’s the chance -- can you repeat the second question?

QUESTION: What are the chances that credit could actually recover and pick up before the conclusion of the stress tests and the quality review, which might be well into next year? And what does that mean for the recovery?

DRAGHI: Well, let me say immediately to the second question that we have, frankly, strong hopes that credit will recover before the end of the asset quality review. I mean, we’ll be in very, very bad shape if credit were not to recover by then.

The asset quality review and the stress tests are foreseen to be concluded before we take over as SSM, before the ECB takes over the SSM, which means by almost the end of next year, and by then, we all -- I think we -- I, the Governing Council, collectively strongly hope that credit will have recovered by then.

On -- on the -- on the first point, there are -- you’re right, there are many definitions of nonperforming loans, and we will have to harmonize these definitions and be rigorous.

The whole exercise of the asset quality review and the balance sheet assessment and the stress tests make sense only if they are credible. To be credible, they have to be transparent and rigorous. Otherwise, they are useless. And I can only confirm that the -- the will of the Governing Council and of the supervisors is to decide policies, take decisions in the coming months along these guidelines, namely to be transparent and rigorous.


DRAGHI: I don’t think so. To shed light on the banking system does not increase fragmentation by itself. It’s fear. It’s uncertainty that has produced fragmentation. So I think it will have just the opposite effect.

And I don’t expect major disasters, but it’s quite important that full light be shed and full transparency be there. And that would certainly decrease fragmentation, rather than increasing it. Thank you.

STAFF: (inaudible)

QUESTION: (OFF-MIKE) economists, including IMF economists, Peterson Institute economists, and many more think that at its current level the euro is overvalued for most of the euro area economy. Your usual answer to that is that it’s close to its long-term average, but that’s a totally different question. By saying that, you imply that markets always anyway get it right, whereas we all know they sometimes get it wrong.

And now, according to the article 219 of the treaty, the ECB can make a recommendation to the European Council about this issue, while respecting the objective of price stability. So my question is, why don’t you? From some countries in the euro area, it looks like you pick the articles you want to apply and the articles that you don’t want to apply.

DRAGHI: Thank you. I’m sorry? Peter? No, please. Please.

(UNKNOWN): No, I’m just going to correct you a little bit. The article talks about changes in the regime, not on the levels of exchange rates. And the regime is approved -- the euro is a floating currency. And there is no -- no discussion whatsoever or willingness from anyone to change that regime. And that’s what the treaty says. It’s not about current discussions of levels of interest rates, which could not be achieved, per se, in a regime of floating currencies by definition.

STAFF: (inaudible)

(UNKNOWN): We respect the treaty in all aspects.

STAFF: Stefan Riecher, Bloomberg?

DRAGHI: Thank you.

QUESTION: Good afternoon, Mr. Draghi. First question. On a more global level, how concerned are you about impact could the shutdown of the U.S. government and the looming debt ceiling have on the global economy and the European economy?

Second question. On excess liquidity, you’ve recently signaled that once excess liquidity goes down to $200 billion or below, that it might be a problem. Does that limit still hold? And if not, is there any limit or close to a limit where you would be concerned about excess liquidity becoming too low? Thank you.

DRAGHI: Thank you. Well, the U.S. budget shutdown is a risk if protracted. At the present time, the impression one has is that it will not be so, but (inaudible) if it were to be protracted, it’s certainly a risk for the U.S. and the world recovery. And so we have to have this well present to our minds.

On the liquidity, I had -- I had many opportunities to discuss and explain that the 200 figure, $200 billion figure was given in a different context. There is no stable relation between this figure and the behavior of short-term money market rates.

The figure -- the excess liquidity figure depends on several factors, one of which is the state of fragmentation. The bigger is the fragmentation. The higher is the excess liquidity.

And so you can easily accept a lower figure without expecting any reaction on the money market rates if fragmentation decreases. In the -- in the, I would say, extreme version, when you have a fully and perfectly functioning inter-bank market, you have no excess liquidity.

So I would say -- I would urge not to make too much about two things, about the relation between the excess liquidity and short-term money market rates, and about the speed of repayment of the LTRO by the banking system. Thank you.

STAFF: (inaudible) Associated Press?

QUESTION: Hi, over here. I’m wondering if you can give any more specific guidance on whether there will be another LTRO and timing. And then, secondly, there was a question about the budget shutdown, but I’m wondering what the effect of a U.S. default would be on the European economy.

DRAGHI: You’re wondering what?

QUESTION: If you see the prospect of a U.S. default and what that would -- what effect that would have.

DRAGHI: No, the second question is easy to answer. I don’t. But on the first question, here I have the famous quote. We are ready to use any instrument, including another LTRO if needed, to maintain the short-term money market rates at the level which is warranted by our assessment of following is the medium term. It’s about what I said before, so I still remember things. And which means basically that we exclude no option and we are ready to act according to need.

So having said that -- that’s just one of our instruments - - but having said that, let me just say one thing, that the fixed-rate full allotment policy will be in place at least until July 2014. So the intention of the Governing Council is to provide liquidity insurance to banks and to the banking system in Europe.

If I have to summarize what is the view of the Governing Council with respect to liquidity, I would say that nobody wants to have a liquidity accident standing between now and the recovery. And, second, liquidity ought to be provided to the banking system as needed, but it should not be a replacement for lack of capital. Thank you.

STAFF: (inaudible)

QUESTION: All right. You mentioned the banking -- yes, it’s working. No? Yes. You mentioned the banking union. And apparently, the mechanism of single resolution is not so easy to put in place, because especially Germany is a bit reluctant. So -- and the President Hollande apparently yesterday told you to hurry up a bit. So can you tell us if there is any chance to put this resolution in place before the next elections of the parliament in March?

DRAGHI: Well, I definitely expect that. The ECB has basically -- and the draft proposal by the commission -- contains the three elements which we always believe to be important, namely a single mechanism, a single authority, and a single fund financed by the industry, by the banking industry.

So from this viewpoint, substantial progress has been made. We also believe that 114, article 114 provides a sufficient basis for the creation of the SRM. Where we may differ is -- from the commission’s proposal is that we view the two moments of assessing the known viability of a certain banking concern and deciding which actions should be undertaken as clearly separated. The ECB and the supervisors, the SSM, would take care of the first, and the SRM would take care of the second.

Also, the draft proposal on this very same topic gives the ECB the status of, I believe, a voting member, and we -- the ECB believes this should not only be an observer, just to make sure that the two moments are completely separated.

STAFF: New York Times?

QUESTION: Yes, David Jolly from the International Herald Tribune and New York Times. With inflation at 1.1 percent, we’ve got to be very close to the lower bound of the ECB’s target for maintaining price stability. Can you tell us what the lower bound is? Is there a number that -- when we see it in the market, we’re going to know that action is forthcoming? That’s one question.

The second, if there is another provision of LTRO, would there be measures included to make sure that the money ends up in the real economy, as opposed to just being parked by banks in -- at the ECB. Thank you.

DRAGHI: Thank you. On the second question, I should say that we have -- as I said before, we have all the array of instruments available, and we would be using them in order to respond to the needs as most appropriate. So as I said, LTRO is just one of them, and when the time will come, we’ll decide what is the best shape that it could have.

On the first question, I’ve already commented, really. We view the present inflation -- we -- as a mixture of several factors. One set of factors relates to prices, energy prices, food prices, the lack of action on the indirect taxation front by several countries, after protracted action in the previous months, and the exchange rate.

Also, there is another set of factors that has to be -- has to do with the -- with the -- with the present situation -- with the present state of health of the economy. We view this recovery -- and I’ve said this last time, and I continue basically having the same view -- we view this recovery as weak, as fragile, as uneven, and so it’s -- it’s also that that contributes certainly to the outlook for price stability.

STAFF: (inaudible)

QUESTION: Mr. President, I know that sometimes you don’t answer to questions about specific countries like Italy, but maybe today you have a message to send to the markets just about what is needed to avoid that -- that destabilizing risks to growth and to -- to recovery?

DRAGHI: Well, I -- let me say that I can comment on this in quite general terms. The -- all in all, when you look at periods of instability -- and we’ve seen them in Greece, we see them in Portugal, we see them in Italy now. You see that these countries -- while instability may be hampering the hopes for a recovery in these countries, it doesn’t really hurt the eurozone, the foundations of the eurozone, as it used to do a few years ago.

In other words, the eurozone and the euro is more resilient today than it was a few years ago. And that has three sets of reasons. One is that, indeed, substantial progress has been achieved by governments on the front of fiscal credibility and, to some extent, also in the front of structural reforms. The second factor is the ECB response last year with OMT. And the third factor is that, by and large, the euro governance, the governance of the euro area has progressed significantly in the course of 2012. Thank you.

STAFF: (inaudible)

QUESTION: President Draghi, you had the meeting yesterday with Francois Hollande, President Hollande. It’s the first day for you in Paris as chairman of the ECB. What’s your -- how do you regard the reforms in France and the budgetary objectives, directions? You said it’s too much slow in eurozone. Is it also your point of view for France?

And small second question. Some members of board of ECB speak this summer about publishing of the deliberations of the Governing Council. What’s your position about that? And for what time is it possible?

DRAGHI: Thank you. Incidentally, it’s not my first time as chairman of -- as president of the ECB in Paris, because I went to the Assemblee Nationale. Yeah, with all the Governing Council -- yes, yes, yes, absolutely. It’s true. Right. You’re right.

So during the meeting, we basically surveyed the economic situation of the euro area, the situation of France, the state of progress of the banking union, in specifically the asset quality review, the balance sheet assessment, the stress tests, and the state of preparation of the SSM.

The assessment is the following. I would say there is a common line for both as far as budgetary policies are concerned and structural reforms that significant progress has taken place and more needs to be done. The budgetary figures are -- the effort of fiscal consolidation has been significant, but still these figures are above the excessive deficit procedure, so they -- more needs to be done on that front. And the same message holds for the structural reforms. Very significant action has been undertaken, but more needs to be done on several fronts. Thank you.

Oh, on the minutes. I’m sorry. You rightly called them the liberations and not used the word minutes, because that is -- that was quite appropriate. I did say on another occasion that the executive board would present to the Governing Council a proposal in the fall on this point, and we are still working on it, and soon we begun -- we will begin discussions on this.

STAFF: (inaudible) CNBC?

QUESTION: Mr. Draghi, I have a question on what happened to the asset-backed security program. Is there any progress there? And my second question would be on -- if you consider changing the risk assessment of certain securities for banks, as well, to hand in to the ECB’s collateral. Do you envision a scarcity of collateral sometime in the future? Thank you.

DRAGHI: Thank you. Now, let me say that the -- credit -- well, talking about different ABS, of course. You have the SME-based ABS, or you have the credit card ABS. The first ones -- the credit card ABS’s are only a small component of our ABS sector. And this affects the eligibility of about 2.4 billion euros of collateral, which is about 0.3 percent of the overall eligible Eurosystem collateral basis.

Well, our recent decision sends two messages. First, relatively simple ABS with a good record track, such as credit card, will continue to be recognized and appreciated by the Eurosystem collateral policy and, second, that our collateral policy adapts to market developments. I think that’s as far as ABS are concerned.

We are certainly also ready to consider accepting the mezzanine tranche of ABS’s as collateral, and the commission and the EIB are working jointly on trying to help the use of ABS, so as to foster credit developments in the euro area.

I’m sorry. The SME?


DRAGHI: Yeah, the SME-based ABS. Yes. Yes.

STAFF: (inaudible)

QUESTION: The credit is still very low in the eurozone. Some analysts speak now from growth without credit. Do we think it’s -- what -- what is awaiting the eurozone, growth without -- without credit?

DRAGHI: Thank you. Credit -- credit flows are still weak. I would say even very weak. And even though we see significant improvement in fragmentation on the funding side for banks, and the improvements on the lending side, fragmentation, are just marginal. We see reduction in the dispersion of the lending costs, on the lending rates, but these are really marginal developments.

The reason why lending flows -- credit flows are still weak are complex, and they regard -- they concern both demand and supply. Clearly, demand factors are important. The -- and to this extent, credit flows are a lagged indicator of renewed growth.

So demand factors are important. Heightened risk aversion is another factor which is very important. And I think the more we proceed, the more the recovery will gradually develop, the more our accommodative monetary policy stance will find its way through the economy, the more we will see these two factors really playing the greatest role with the funding side playing less and less of a role, especially since what I’ve said before that the ECB will continue providing the liquidity as needed. Thank you.

STAFF: (inaudible)

QUESTION: Yes, I have a question again on political instability. You’ve mentioned a few countries. Now Germany is also without a full functioning government for some time. Do you expect that it may delay the prospect for banking union, in particular the regulation regarding the SSM? And you think that there will still be feasible to have that in place by the beginning of November, which I think was the -- was the plan. And also, on the resolution mechanism, you think there will be any delay on that because of political uncertainty, the number of -- in a number of countries?

The other question is a follow-up on a previous question and regards the fact that inflation seems to be going away from your target, not in the direction of your target. And how do you reconcile that with your statement that monetary policy is accommodative? Is that maybe it’s not accommodative enough?

DRAGHI: On the first point, I certainly wish that everything goes by schedule. So -- and I can’t read enough in -- I don’t expect developments of -- political developments in several euro area countries to delay the developments on the SRM. And I don’t have enough visibility on these developments anyway, as to be able to judge on this -- on this point.

On the inflation side, I have explained this. We have to look at the medium term assessment of inflation. So far, our baseline scenario has been confirmed. It’s been underpinned by all the incoming data. So the present inflation rates are not unexpected. And I’ve explained the reasons they might have. Having said that, we certainly look with great attention to these developments. And I mentioned the factors that impinge, that affect this inflation.

STAFF: (inaudible)

QUESTION: Yeah, thank you. I would -- I know you don’t comment on particular countries, but, again, a more general question on Italy. We had a major government crisis, but the interest rates hardly moved. So is this actually a good thing? And have we, in a way, abolished all the national sovereign risk? Or don’t you want to -- and second question, don’t you want to keep some sort of -- I mean, at least to a certain extent some sort of national sovereign risk -- sorry, national - - do you want to keep some sort of reform pressure on governments coming from the financial markets? Thank you.

DRAGHI: The -- first, the -- I wouldn’t make too much of short-term movements of interest rates, but if you had followed markets, it’s not entirely correct to say that the interest rates hardly moved. They actually did move.

Second, the -- I think the message that markets are sending -- the message that not only markets -- I think all of you would send the same message -- to countries, the countries that we mentioned, the messages are very simple, stability and reforms. I think these are the messages that markets, if we want to use this sort of abstract definition, but I’m sure that all of us would send exactly the same message, stability and reforms.

Finally, market pressure to reform is simply one of the many pressures that should urge these countries to reform themselves, but the greatest pressure should come from inside. These reforms should be made for their own sake. They don’t need to be pressed by markets.

Thank you.

STAFF: (inaudible)

QUESTION: Knowing that you’re reluctant to comment on countries -- and especially in Italy -- I wanted to remember that two years ago you sent a letter to Rome with Mr. Trichet. So are you worried? Because you mentioned stability and reforms at that very moment, minutes ago, so are you worried?

DRAGHI: I think, as I said on other occasions and in other countries, as far as other countries are concerned, that significant progress has been achieved, especially on the front of budget consolidation. And probably this is also one of the reasons why the instability has produced some movements, but not dramatic movements.

Also, I mean, political crisis have their own times. You would expect market reactions to bet on an outcome even before knowing how the political crisis would evolve. And rightly so, markets want to have -- want to analyze the situation before making their bets.

So progress has been achieved. This -- and it’s been -- we shouldn’t focus only on one individual country. Progress has been taking place all across the board, and this has strengthened the euro area, as I was saying before.

STAFF: (inaudible)

QUESTION: (inaudible) German television. Mr. President, I would like to touch on a question of my French and Italian colleagues. We see...

DRAGHI: I’m sorry. I can’t -- I don’t seem to -- oh, there you are. OK.

QUESTION: We can, indeed, see quite some significant improvements in some of the smaller countries, which were at the core of the euro crisis at the beginning. On the other hand, we see quite some severe economic problems, for example, in this country that Noyer has touched on in former statements, but also in Italy.

And some people now argue that we currently have a kind of transformation, a kind of shift of the pattern of the crisis away from the smaller countries, more to the bigger central countries of the union. Do you share this thesis? And if so, would you say that those countries are aware of the responsibility that they have not to accelerate, not to steer up the crisis again? Thank you.

DRAGHI: Thank you. No, I don’t see a shift of crisis for small to large countries. What I see is -- and I have to repeat here what I said before -- I see a recovery that’s weak, that is uneven, that’s fragile, and what I didn’t say before. It really starts from very low levels already.

For example, we are seeing unemployment that’s now stabilizing, but at high levels, very high levels. The same thing for youth unemployment. And we’re talking about a stabilization of something like 5,000 units out of millions. So that’s what I see. That’s what I see.

The second point you made is also quite valid. Are these countries aware of their responsibilities and of the fact that their own policy actions reverberate on other countries?

They have -- I think -- I believe they are aware, and this awareness has often to be translated into actual action. And I think that this is happening. Of course, people who are -- who live in institutions like ours would like to see everything happening very, very fast. But often, the times -- the speed that non-elected institutions have in mind is not the same as the actual political speed in different countries, which doesn’t mean that we shouldn’t continue to urge them to act.

STAFF: The fourth round -- excuse me. You wanted to speak?

QUESTION: (inaudible) from the Netherlands. Well, about the political instability of the countries, we have the same problem in the Netherlands at this moment. There is an impasse to address the targets of deficits. Is there something to worry about? Or are you confident -- as confident as the financial markets are at this moment?

DRAGHI: I think that the Netherlands have shown in the past capacity to overcome political crisis. So I’m confident that this will be overcome, like the country have done in the past. Thank you.

STAFF: (inaudible)

QUESTION: Yes, Mr. Draghi, I have a question regarding the next elections in March of the European Parliament. Do you think this is going to be a big stress test for Europe, with the development of populist votes in several countries?

And the other question regarding reforms, France has been said to make reforms a la Francaise. Can you comment on that?

DRAGHI: I’m sorry. France?

QUESTION: France is supposedly doing reforms a la Francaise, meaning superficially. So I would like to...

DRAGHI: You respond (OFF-MIKE)

QUESTION: ... for you to comment on that.

DRAGHI: Thank you. Thank you. Well, I mean, we are getting very political here, friends. You’re asking me questions about what I think about -- I really don’t have any -- any comment to make about the next elections in the European Parliament.

I can only have a very sort of narrow-minded viewpoint here. It’s quite clear -- the set of actions that have to be undertaken in order to foster recovery and especially create jobs and decrease youth unemployment -- all unemployment, especially youth in some parts -- some parts of the euro area are by now pretty clear. As our American friends would say, there is only one way to skin a cat, I think. And -- and that’s what -- unfortunately, that’s what -- or fortunately, that’s what it is. So the issue -- in a sense, any action, any political conclusion will be judged under this viewpoint.

On the second question, le reform a la Francaise, I would ask Christian to respond to this.

NOYER: Thank you. Thank you very much. I’ve not much to add to what you said already, President. But I will repeat it, if I may, with my own words. I think a lot has been done, as in all countries in the eurozone, but a lot remains to be done. I’ve no particular comment on specific reforms, except that -- and I repeat myself, also -- more needs to be done, especially on structural reforms, to continue the efforts that have been already made.

We need to increase the growth potential. It’s not unique to France. I mean, it’s a comment that I probably could make in general and that the president has made many times for the eurozone in general. And we need to put more emphasis on expenditure reduction or control. Increased taxes is the easy part of fiscal consolidation, but the reduction of expenditure is certainly the most important in the medium to long term to enhance the growth potential and the reactivity of an economy. So I will stick at that.

STAFF: (inaudible)

QUESTION: (inaudible) from the Spanish press news agency. Do you think it will be necessary additional measures for the Spanish banks when the current will take in?

DRAGHI: I’m sorry. Additional measures for...

QUESTION: For the Spanish banks when the current will take in?

DRAGHI: Well, the -- the program in Spain is judged to be on track. The actions that have been undertaken have been considered adequate. The recapitalization plans have been undertaken. The assets have been transferred and are in the process of being sold, actually are being sold already.

So everything -- and provisions have been quite significant. So everything seems to suggest that Spain will approach this exercise in -- well equipped, but, of course, it’s very difficult to guess at this point in time what can happen at individual banks at this point. Thank you.

QUESTION: (inaudible) from Japan’s Kyodo News. My question is about the asset quality review. You say it will be transparent and vigorous, but the past exercises by the EBA were also supposed to be vigorous and transparent. What are you going to do differently to restore confidence?

DRAGHI: Well, the -- let me say that we will give detailed communication about the design of the asset quality review in the second half of October. Until now, it’s premature to just put forward one element or any other element.

What I can tell you is that people -- people learn. And the general -- I would say the unanimous stance with respect to this exercise by all supervisors and Governing Council members is to be transparent and rigorous.

It’s quite clear to everybody -- and in part, because of the lesson we had -- we had experienced, that -- that in order to be useful, they have to be credible. In order to be credible, they have to be transparent and rigorous, in this order exactly. So the process has to be absolutely transparent. And I think we are doing -- we’re doing much to this extent.

Also consider the difference with respect to the previous exercise as far as the plurality of actors is concerned. At this point in time, we will have the ECB, we will have the national competent authorities, we will have other countries’ competent authorities also participating to the -- to the exercise, so there will be peer pressure, and we will have third-party private-sector independent assessors. So there are some differences in the design. Thank you.

STAFF: The last question to (inaudible) La Stampa.

QUESTION: It’s just on the left. Yes, in the last two weeks, we saw two very important elections, one in Austria and one in Germany. And in both elections, in very stable countries, we saw anti-euro parties growing very quickly. Also in Germany, I mean, even if the Alternative fur Deutschland didn’t reach the 5 percent hurdle, but it’s on 4.7 percent, and it’s a very, very important result. Are you worried about the anti-euro growing everywhere in Europe now? And what should be done to -- to -- against this?

DRAGHI: I think we should certainly be alert to these -- to these expressions of the popular will. And to -- I think there is one common denominator in what we should do. We should move forward on the three pillars of our policies, first with the ultimate objective of fostering the recovery, creating jobs in a situation of price stability, and the three pillars are national economic policies should continue their reform actions, the ECB should continue keeping price stability, and the economic governance at the euro area level should continue making progress.

STAFF: Thank you very much. Thank you.

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