 So I'm very happy to welcome you all to what, despite the mistaken views of many, is undoubtedly the most important session of the World Economic Forum, and the fact that you're all here on Saturday afternoon instead of skiing shows that you understand that, very sensible people. We have this year, I think, a really remarkable panel. Before I introduce you, let me just introduce you very briefly. To my left is Mr. Haruiko Korodo, who is, of course, the Governor of the Bank of Japan and right at the moment, the most exciting central banker in the world. We have had an extraordinary number of exciting central bankers, and almost as exciting is the man to his left, Mark Carney, who I was about to introduce as Governor of the Bank of Canada, but in fact is, of course, Governor of the Bank of England. To his left is Christine Lagarde, who has returned to this panel, Managing Director of the International Monetary Fund. To her left, Montek Alawalia, Deputy Chairman of the Planning Commission in India, which really means he runs it since the Chairman is the Prime Minister and has other things to do. On his left is Larry Fink, Founder and Head, of course, of BlackRock and our private sector voice. I hope a very robust one. In fact, I'm confident of it. To his left, Mario Draghi, Governor of the European Central Bank. This is a very central bank-heavy panel, and finally, we're delighted to have with us this year, Wolfgang Schäubler, the Finance Minister of Germany, a decisive figure in the Eurozone story. I'd just like me to inform you that Mr. Draghi has to leave at 2.30, so we are going to focus our earlier discussion very much on Europe, and then after he's gone, we'll move to the rest of the world, the bits of the world that really grow. Right. Very brief background. I think the general mood out there, almost seven years after the crisis was seen to begin in the summer of 2007, is some real optimism about the world economy on the real side. The IMF has just released updated forecasts which show growth, which indicate an expectation of growth of 3.7% in the world economy this year, up from 3% in 2013, with improvements quite general in the advanced countries, notably so in the US, 2.8% against 1.89% last year. The Eurozone actually with a percent of positive growth, which is quite a big change from years of decline. Modern countries also growing more quickly, but up at 5.1%. But there's also obviously lots of things to be concerned about. The advanced economies are still enjoying, if you can use the word enjoying, a very weak recovery. All things continued, almost seven years after the crisis I've mentioned, they've lost an immense amount of output relative to pre-crisis trends. And this is despite the most aggressive monetary policies conducted now over five or six years in history, free money. There are concerns about deflationary pressures in US and even more the Eurozone. And this is against the backdrop of real concerns about long-run productivity growth and inequality. So there are big issues in the advanced economies. In the emerging economies, we've seen some market turmoil recently. There's questions about China's slowdown, the way it's being handled, the end of the credit boom. So very big issues in this incredibly important, a new superpower, China, and much pressure on other emerging economies. The questions of tapering, capital reversals, exchange rate volatility, commodity price weaknesses, and other real concerns about how emerging economies are going to sustain the really rapid growth and convergence we've seen. So general some optimism, but some real concerns. So that seems to me the background to these discussions. So I'm going to start now for a global overview with you, Christine Lagarde. Thank you very much, Martin, for pretty much covering my subject. Having quoted the IMF, I cannot blame you. But given what you've said, I will try to focus on my two other R's. My first R, which you've covered very well, is this recovery that we are seeing and that is really in consolidation process at the moment. Happening at different rates in different areas. But with certainly the key news as being the advanced economies moving a bit further than expected, which is why we revised the emerging market economies with a slower momentum than we had thought. And low-income countries still going strongly and an area from which there is quite a lot of hopes. So I will focus on my two other R's very quickly. The first of my, sorry, the second R is risks. And we are seeing here some of the old risks that have not yet been completely fixed. And I'm sure that Mark will touch on that. The first one is this financial market reforms that are underway and which are not yet completed, which need to be completed. The second risk that we still have on the horizon is this unbalanced growth that we are still seeing that has been fixed a bit as a result of the slower recovery, but we're clearly with better recovery. We can see the unbalances between the different economies re-accelerating yet again. More interesting and probably more debatable as well and debate has begun are these new risks that we are seeing. The one that has been talked about a bit is the issue of how tapering takes place at which speed, how it is communicated and what spillover it has, what spillover effects it has on other economies, particularly the emerging market economies. We've seen a bit of that during the tapering talk of May. We've seen less of the downside effect, the spillover effects in December when it was very well announced by the Fed, but this is clearly a new risk on the horizon and it needs to be really watched. The second one, which is also debatable and I'm sure we will discuss it, is the one that we've called a low probability but yet a probability associated with it in the range in our view and in our numbers of about 15, possibly 20% of deflation. And I'm going to qualify for a microsecond, Martin, if I may. The deflation risk is that that would occur if there was a shock to those economies that are now going at low inflation rates and certainly way below targets. I don't think that anybody can dispute that particularly in the eurozone at the moment, the inflation is certainly way below the target that it is normally associated with which is close or at below 2%. So with that in mind and low expectation, sorry, low inflation for a period of time, the risk is that longer term expectations be anchored at a much lower level than it is currently associated with, which is why the IMF has identified that as a potential risk. And the term deflation is coined with this longer term, low inflation risk that we see with a shock to those economies. I hope I've made myself clear on a topic that is obviously a little bit complicated. My last R is reset. We're seeing as necessary going forward a reset in the area of monetary policies. We believe that quantitative easing and the accommodating monetary policies that have been adopted so far should be continued up until such point where growth is well anchored in those economies. And this is not yet the case everywhere. Reset in the sense that once it is well anchored, then those accommodating monetary policies have to be reformulated, have to move either back into their old territories or be more traditional or be maybe of a different kind. And I'm sure central bankers around here will be able to comment on that. But that's first reset. Second reset is the one that Mark is, I hope, going to talk about it, about which is the financial sector reform and regulatory environment that is clearly undergoing a major reset at the moment. And the final reset, which is my last word, Martin, is those structural reforms that are necessary in all corners of the world. Very often people think structural reforms, OK, for some of those advanced economies that have such rigid labor markets, no. It's not just that. And I'm not sure that I would necessarily associate advanced economies with rigid markets. Nor would I mark flexibility as the ideal solution for it. But structural reforms are needed in product markets, service markets. But they're also needed in emerging market economies, where structural reforms can take a completely different form from those that I've just mentioned. And they have to do with bottlenecks in certain countries. They have to do with proper governance. And they certainly take multiple forms, including that of unleashing the potential that is there, but that is still constructed by a lot of licensing rights, protective barriers, and so on and so forth. I've finished with my three R's, the most important one of the three being the one that I've not commented on, but that you have eloquently commented on, which is R for recovery. I knew that I would liberate you to focus on the other matters, which actually I think are more important. Risks and reset. I'm going to turn now to Mario Draghi. Inflation is running at well under 1%, which is quite a long way from your target, though you have adroitly set it at close to but below. We don't know what close to means. Maybe this is close, doesn't look close to me. There's a real issue about deflation, concerns, and the possibility of a negative shock is always there. So is your monetary policy failing? Thank you. Thank you, Martin. I'm not going to ski, by the way, when I leave. Yes, I agree. The inflation is subdued, and it's expected to remain so over our forecast horizon now, which is about two years. It's going to stay on the low level of our target range, I would say on the very low level, for a protracted period of time. Now, we are aware that the longer stays at low level, the more serious would be the risk of deflation. And so we are ready, as we said in a recent press conference, we are ready and willing to act if needed. The issue is, is there deflation? Or is it how likely is deflation? Well, if you define deflation as a broad-based fall in prices, where you have self-feeding expectations of further falls in prices, broad-based across goods, across sectors, across countries, we don't have that in the euro area. The inflation expectations, medium-term inflation expectations remain firmly anchored at 2%. So let me try to give a little perspective to this phenomenon, which we are experiencing in the euro area. First of all, when you look at, well, you know that some of this low inflation is due to global factors, like the low price of energy and food. Because after all, when you look at inflation in the United States, it's not that much higher than it is in Europe. Second, when you look at core inflation, and you look back a few years back, you see that core inflation now is at the same level as it was in 1999, at the end of the Asian crisis, and as it was in 2009 at the end of the Lehman crisis. So it's quite clear that financial crises of this magnitude are often followed by a period of low inflation. But also, the other interesting thing that we've done is to look through the core inflation numbers. And we see that the decline in core inflation is entirely due to the decline in inflation in the four program countries, Greece, Spain, Portugal, and Ireland, almost entirely. Now, this suggests that some of this low inflation that we see in the euro area is actually due to a relative price adjustment, and therefore, it's bound to end. That's why we think that in the medium term, inflation will go up to a level which is close to 2%. So that is the perspective we are trying to have in looking at this phenomenon. And it's clearly a mixture of the effect of low demand, high unemployment, but also there is a very important component of relative price adjustment, which is fortunately good, because these four countries are also the countries that look first in terms of structural reforms, what they did in the last two years, and their growth prospects have improved substantially. Thank you. Oh, I'm sorry. I didn't respond to your point. What are you going to do about that with your monetary policy? Well, I have to be, I don't want to discuss in detail single instruments of monetary policy. But one thing one should keep in mind is that instruments depend on the contingencies that you face. We might have two risks or two contingencies that we may have to cope in the near future. One is an unwanted tightening of our monetary policy, of our monetary conditions in the euro area. Unwanted tightening could come from the short-term money market rates, tightening, spreading through the yield curve to the medium term. And then you have the other contingency, which is the one Christine was hinting at before, which is a sudden worsening of the inflation outlook for the medium term. And the instruments are going to be different, depending on what contingency. It's quite clear. So let me say in concluding this, let me say that our commodity monetary policy will remain so. The interest rates will stay at the present or lower level for an extended period of time. And if any of these contingencies were to happen, we are ready and willing to use all the instruments that our treaty allows. Thank you. Would you like to enlarge on that last one? Not really. Buying bonds? Not really. Not really, because you know what happens. If I discuss one specific instrument, the day after markets are convinced that that's the instrument that figures as number one in our list. But I actually am a little forward and try to be forward into your needs. And so I'll make a little effort on one specific point, because I know that in everybody's minds, QE is the magic word by which everything would be fixed in the euro area. I don't think anyone is suggesting that, actually, to be fair to them. OK, good. I'm not saying that it should be done or it shouldn't be done, but let me tell you one thing. First of all, we have a treaty that says that prohibits monetary financing. So we don't have a guild program like in the UK. We don't have a government bond program like in Japan or in the United States. Second, when people think about private sector assets, then they should know what they talk about. Our financial markets in the euro area are 80% banking markets. Capital markets are actually going very well. Corporate issuance has gone up. And even bank bonds issuance has gone up. So there is no need to do something in that sector, in that field. So what other assets would we buy? One thing is buying bank loans. Would you buy bank loans today? So the issue for further thinking in the future is to have an asset which would capture and package bank loans in the proper way. Right now, securitization is pretty, I would say, dead. ABS are not an instrument that is at the present time feasible. It might become so if regulation on this front will distinguish between ABS that are plain vanilla. That is to say, easy to understand and price and trade and rate from ABSes which are highly structured, opaque, which basically are being banned from the market forever, at least I wish so. Thank you very much. I think the implications of what you have to say are pretty clear. Because you're just about to go, that's one after issue that I'd just like to raise, which is the asset quality review. And basically, very simple question. I want to go into the details of this. I think people really want to feel after many, what are seen as failed attempts, that at the end of this process, we can have total confidence, or as near total as you can ever have in a real economy, in the stability of what is, in fact, the world's most important banking market. Yes, that is exactly our objective. The objective, first and foremost, the objective, most important objective of our asset quality review is to shed light on what is in the bank's balance sheets, its transparency. That's why it is a process that is being set up right now. And it's driven and should be driven in an operationally effective and completely transparent fashion. Even the process itself should be transparent. That's why we have started a series of communications to the industry every month or so. We communicate all the parameters and the developments of this process. It's so important not only for the private investors that in order to put money in the banking industry, they ought to know what's there. But it's important also for our monetary policy transmission channel, because one of the realities we saw, we witnessed in the last two years, is that when we changed interest rates, when we cut interest rates, this was immediately translated into lower lending rates by the banks operating in the core countries and not by all of them, and not so in the banks operating in the non-core countries in the periphery. Now, the situation has considerably improved. On the funding side today, we are by and large, as far as bank deposits are concerned, the same situation as we were in 2007. On the lending side, the spread between lending rates in the core countries and in the non-core countries has decreased, but not at all by as much as the funding rate. So the AQR is very important to assess what is the exact health, what is the actual health of the banking system, and therefore improve our transmission monetary policy channel. Thank you very much. May I move to you, Finance Minister Scheupler? Do you share the optimism about the recovery, the regained deep stability of the eurozone and recovery, and also how do you see the German economy in that context? I do share, first of all, I think we are good. Of course, I have to add to what Mario Dragic just said. Europe is a little bit different to other regions because we have one monetary policy, but we have still 18 different fiscal and economic policy, slightly different fiscal and monetary and economic policy. And that makes things a little bit more complicated. That is the reason we have to avoid any wrong incentives because the temptation not to stick to the needed decisions in fiscal and economic policy, structural reforms and so on, is very high if you have one monetary policy, one central bank and 18 several nation states. That makes the eurozone a little bit complicated. Having said this, I think the eurozone overall is not longer the center of all the concerns of the world economy, the better world economy. That's fine. I remember the last couple of years when it was a little bit different and I think we have better regained confidence in the euro and in the fact that the euro will remain a reliable currency and an important European currency and the European member states, all European nation states will stick to the European integration and to the European common currency and that will remain a major currency all over the world. That is decided and no one wants to change this and it will not change. We have, that is a broad consensus and on this basis we have solved the problem by the way. We did it in this program as it was highly disputed in the last couple of years but if you see the most successful member states in Europe are members under program because they delivered what has to be delivered, other it was very well, Portugal is doing very well, Spain did extremely well, Greece did much better than everyone expected two years ago to be very frank. Cyprus by the way is doing very well. Slovenian does not need the program. I remember all the discussions I got the last couple of years and therefore we have the euro is stable, we have regained confidence and now we are working on this very difficult issue of building a banking union. Of course we are limited to the given treaty. We can discuss what we would like to have for treaty changes but as long as we have no change, we are all born that is the principle of any state with the rule of law and democracy that we are bound to the given legal basis and that in Europe that's a treaty. And this means we have taken the decisions to build, we have a common European banking supervision, we have the legal basis for the single supervisory mechanism, we have harmonized rules on the saving directives, we have agreed on restructuring, the rules for restructuring with clear rules for bail-in for the future. In the framework of the single market, we have, this all has to fit with the rules for a single market with 28 member states, 18 member states of the Eurozone, but a single market for 28 member states and that has to fit with this. So rules for bail-in and now in December we agreed on a single resolution mechanisms including a resolution fund which has to be financed by the industry itself. That can only be delivered under the obligation of the member states because the member states are the only who can imply a levy. Of course the European levy is fine, but you need a legal basis, you have not. A safe legal basis effort, you have to rely on a national levy and you have to build a European fund by intergovernmental agreements that's the only sound legal basis we are doing. And as long as it's not fully paid in, the national member state has to take liability that it will be paid in because it's the only one who, I as a German member of a government and a member of parliament, I cannot oblige Italian banks to pay the levy. I can only oblige the German banks to pay the levy, therefore member states have to be involved until it is. That will happen, that we will find this rule and then we have all what is needed that the ECB or by the ECB can take the banking supervision for the all relevant systemic relevant or cross border European banks. And this will work. I'm quite confident that we will achieve this and that will further stabilize the eurozone as a whole. Of course we have to continue to stick on structural reforms. That is the most important thing. I'm very glad you got that bit at the end. I know Mario, you have to leave. Thank you very, very much. See you on Monday. Said very important things. I'm going to get away from developed countries this stage because after all they're only about 12% of the world population. So I'm going to turn to you, Monte Caldwellia. How does the world economy look to you from India and as you see in other emerging economies and the change environment in the developed world, change in interest rates, possible rises of the next year or two. How well are these countries positioned? And there's a particular issue obviously about India. There's a quite broadly based sense that growth is disappointed now for some time, improving a little this year. What's gone wrong and how can it be fixed? Thanks Martin. First on the global bit, let me just say I agree with Christine's, what I would call cautiously optimistic outlook, which I think most people share. There's no doubt that after two years of pretty bad news, everybody's agreed that this current year is going to be better. Now from the developing country's point of view, I think we have to recognize that this recovery is quite different from the ones after the first crisis because actually most of the growth, most of the additional growth in the world is not coming from the developing countries. It's really coming from the recovery in the industrialized countries. The developing countries are doing a little better and certainly their average growth rate is higher than industrialized countries but this is not the world of the two-speed recovery that we all enjoyed so much, especially in the developing countries. Now you have to ask yourself why has that happened? And my guess is that the answer is different for different countries. I mean the most important country of course is China. It looks as if it's stabilizing at 7.5%. But you know, this is exactly what the Chinese targeted. I mean the Chinese 12-5 year plan targeted a 7.5% growth and since the world was very keen to do rebalancing, you might say that well, while they're growing slower, that's more or less according to their plan and according to the global plan. So nothing much, I mean lots of problems about how they're going to manage it and that's true. But the slowing down is actually as per plan. Now India is different. I mean we benefited from the two-speed recovery in the sense that you know for about seven or eight years before the Lehman Brothers crisis, India grew at 8%. Then we went down, but you know we recovered very quickly and the average growth rate in the three years after the first crisis was pretty much the same as the average growth rate in the previous seven years. That's not what has happened. I mean we slowed down this time in 2011, but in 2012 we slowed down further and 2013 looks about the same. So I think you're right to ask and certainly we've been asking in India, why has that happened? To go down from 8% to 5%. Now our central bank governor, Raghuram Rajan sort of offered, but I think it's quite a good back of the envelope calculation. I mean he's made it clear and the government has also made it clear that we never said that the slowdown in India is only because of the global crisis. I mean the government said, well partly global, partly domestic constraints. Raghuram put some numbers to that, which is very catchy. So one third due to the global, two thirds because of domestic constraints. So actually I think that's quite a reasonable breakup and the government knows that we've run into domestic structural constraints. Now how do you address them? There are many different aspects of structural reform. For the last year, the government's been trying to address those. Probably the most immediate are really regulatory clearances which had somehow slowed down. Maybe the system wasn't transparent enough. There was more concern reacting if you like, maybe to some environmental activism, some judicial activism. And as a result, many large projects just did slow down. And I think that is what the government is focusing on. I believe that we have actually given a large number of clearances. We need to do a little more in the sense that we need to make it systemically an easier thing, not just giving some clearances. And I believe that that is gonna happen. Many other reforms are really in the pipeline, especially in the financial sector. And I think these will get rolled out over the next year or so. So my feeling is that the IMF brightly has projected a higher growth for India in 2014, about half a percent higher than in the previous year. I believe that if the structural reforms that we are talking about do get implemented, then the acceleration will be more than that. Now of course, the most important thing that's gonna happen in India is the general election three months from now. And you know, inevitably investors and business interests will be looking at that. Now I don't like thinking of the election as a risk or an uncertainty, although that's what financial analysts do. I mean, the fact is 750 million people are gonna exercise their franchise in a completely free and open vote. And if you go back on Indian elections in the past, I mean, we've seen this happen before. And I think each time the broad consensus on policy has survived. So I think there's a lot which is in the pipeline. It can't be done in the last three months of an election. And what the present government is doing is implementing what is possible within the law. There's a whole lot else which could come very quickly. And personally I think that India could get back. I would have said seven and a half, eight percent over a two or three year period. And we have to work hard at it. And that's where I think Christine rightly said that structural reform is not just something that industrialized countries have to do. We have to do a lot is different from what the industrialized countries have to do. And you also asked me about how do we look at all these uncertainties, the taper, et cetera. Now clearly in a highly interconnected world, there will be spillover effects. Hopefully they'll be better managed. There's some evidence by the way that these multilateral discussions or plural lateral discussions are having some effect. And it is no doubt that when Mr. Bananke first made a statement about the taper, actually there's nothing wrong with his statement, but the market reacted very adversely and very precipitously. One reason by the way was that the global economy wasn't in good shape at that time. I mean, certainly in India's case, we had lots of weaknesses that were then evident. So my feeling is that A, it's been better managed. There's a great assurance that it won't be something suddenly inflicted on the system. Mario's just indicated that if there is any undue restriction, other central banks will do something which might offset that. And I feel that while interconnection is there, probably well managed economies will be able to withstand the shock. And you know, India's experience is interesting because last year, April, April of last year, when the reversal took place, the Indian currency was badly hit. At that time, many of the things that I'm talking about, setting the system right were not yet in place. The previous year, we had a current account deficit of 4.8% of GDP. Now it's less than two and a half. So and the currencies moved a teeny bit, but not very much. So I think that the risk is there, but I think well managed emerging market countries will be able to handle it. Thanks. So cautious optimism. I'm going to move now to, I think, the most exciting monetary experiment of the moment. The first arrow of Abinomics under Haruiko Koroda, who I've known for 40 years, and congratulations on the job you're doing. So tell me, tell us about the return of inflation to Japan. Oh, thank you. The current government started a new policy regime called Abinomics, which consists of, as you said, three arrows, aggressive monetary easing, flexible monetary policy, and substantial structural reforms in various sectors. About 12 months have passed. Economy has rebounded very strongly. Actually, the Japanese economy has been growing close to 3% in the last 12 months or so. The Bank of Japan introduced a new monetary policy framework called quantitative and qualitative monetary easing, or QQE, last April. Nine months have passed. An inflation rate nine months ago was still negative, but now it's positive 1.2%. And even consumer price inflation, excluding all foodstuff and energy items, reached recently positive 0.6%, which is the highest in the last 15 years. So I must say that the Abinomics as a whole is making progress, and in particular, the monetary policy has been achieving significant progress toward the 2% inflation target, which should be achieved basically within two years' time. Only nine months pass, so we have still plenty of time to reach the 2% inflation target, and I'm quite sure that the economy with sustained growth supported by flexible fiscal policy, as well as substantial structural reforms would be able to bring about this continuation of deflation. Deflation continued in Japan for nearly 15 years. Mild deflation, yes, on average, negative half a percentage point or something, but deflation created very negative mindset in Japan because corporations having their profit dwindling didn't invest in fixed asset or technology or human capital and also didn't raise wages. And the household sector, of course, their income was dwindling year after year, and prices declining so that they simply spent less and less. So that prices continue to decline. So this was a kind of deflationary cycle and through this deflationary visor cycle, innovation was not very strong and investment in fixed asset, as well as human capital, has been very slow. Now, the economy has been very slow, has been very slow. Now, the situation has completely changed and I'm quite optimistic as far as the economic growth and appropriate 2% inflation concern they would be achieved. But we are only halfway, only halfway. So there's still a long way to go. So we have to be mindful that there could be downside risks from within the country or from abroad. And by the way, I would like to just remind all of you that the Bank of Japan Monetary Policy Committee meet 14 times a year, more than once a month. While I understand the FOMC meets eight times a year. So we have plenty of opportunities to assess the outcome of the economy and the focus of our economy and if necessary, could adjust our monetary policy either way. I think one of the most fascinating aspects of this remarkable experiment is that most economists, I suppose probably 99% think that a determined central bank can create inflation if it wants to. Japan has a determined central bank so we'll find very soon whether this is the case. Until very recently, nobody would really have questioned this. Mark Carney, let's start with the UK. You can look a little more broadly if you want. You came to this completely beaten up economy which suddenly has revived in this wonderful way. It's wonderful what credit does to the British. And I read in some papers that as a result, your thrilling new policy of guidance has failed. You might want to respond on that point and more broadly set the scene for monetary policymaking in a possible exetish sort of context so what many people out there think with a rapidly recovering economy might be an exit setting. Okay, thank you, Martin. It's a neutral question. Very neutral. It's a testament to how things have moved since we were on the panel last year that you can almost ask that question with a straight face. In my case, it's not a very straight face. Not a very straight face. A couple of words on the UK recovery. Three factors, Wisdom of Hindsight, three factors drove the pickup in the UK which has been quite marked. First, accumulated debt pay down by British households, more than 20 percentage points of income, and that in an environment of very low nominal income growth, so more impressive even than it sounds. Secondly, financial sector repair. If you look at the top 50 banks in the world, they have raised half a billion US dollars of equity since the crisis. The major banks and building societies in the UK have raised 140 billion pounds of that total. So that gives you a sense of the order of magnitude of the repair of the core of the financial system and full credit to my predecessor and his colleagues for doing that and encouraging that. And I would say the third thing that helped, and it's the least tangible, but is a reduction in uncertainty. Part of that is a few years ago, Montague had the great analogy of confidence. It grows at the rate of a coconut tree and falls at the rate of the coconut. Well, it's been the slow growth of the tree in the UK, helped by developments in Europe very much so, helped on progress of the financial system, and to move to monetary policy, we would say helped by forward guidance and additional clarity that it provided. And the clarity was first and foremost around when the recovery comes, the bank is not going to immediately withdraw monetary policy stimulus. So let's talk about failure. Inflation is 2% on target for the first time in five years. So Corotasan is coming to his 2% target very impressively from below. We were coming to the target from above. We're back on target. The fastest rate of job creation since records began, now a little less impressive than that sounds because records began in 1971 for, you didn't count jobs in the UK before 90, didn't matter before then. Actually, the unemployment rate was 1.5 to 2% who cared? Well, it's a proper labor market. Well, that also goes to one of the issues, which is the relative level of uncertainty around supply, which we can get into, but let me go to your broader question because I think you wanna discuss the reset, if you will, that Christine raised around monetary policy. And let me put one bit of context here in terms of the risks as well, which is we have been in a very low volatility environment, in part, and maybe in large part, because of the policies of the major central banks. So there's two dynamics here. One is to move back to a more normal volatility environment, which will feel like a big increase in volatility, and then potentially move farther than that because of some of the structural changes in the financial system that Larry and others are better placed than I do to talk about. In terms of exit, and I am not signaling an exit UK monetary policy here, just to be clear. We have our first phase of forward guidance with a 7% threshold for the unemployment rate is approaching, and we don't know exactly when, but approaching the achievement of that threshold. We will assess the overall conditions in the labor market, more broadly, supply capacity, and its impact on inflation in the economy, just as we've said all along that we would do at that point and set policy appropriately. We have already given some additional guidance on monetary policy. We've already said there's no immediate need to raise interest rates in this environment. And even when that point comes, which could be, well, I won't put a time on it, but even when that point comes, any such increase would be gradual. I think the interesting thing from a global economy perspective is why would it be gradual? Where's the, and I'm sorry to use jargon with a big crowd, where's the real equilibrium interest rate in the global economy? How much below that do we have to run monetary policy effectively, which is what we're doing right now in the United Kingdom, what the Fed is doing, what the Bank of Japan is doing, and others, in order to provide the exceptional monetary policy stimulus that is still required to maintain momentum in these economies, and I'll finish with this, is that as good as the numbers have been in the last three quarters in the United Kingdom, we're talking really about three quarters of household-led growth, an economy that's running 20% below pre-crisis trends, that has substantial spare capacity, that has not yet rebalanced, and that faces significant headwinds from its major trading partner, from overall monetary conditions, including the exchange rate, and still the residual balance sheet repair, both for households, the public sector, and the financial sector, and in that environment, exceptional stimulus remains very relevant. Okay, that's, I think, about as clear as you can get. Larry Fink, last word on this, and then we'll go to the audience, I think. You might want to say a word or two on the U.S. Everybody's very bullish. The general view is optimistic, I think. Although not by the standards of a normal recovery, but by the standards of recent performance of the U.S. and other economies, but I'd be particularly interested in your view on what's happening in the financial sector, and the risks there, could that mean we've had a low volatility well? Are we moving now, looking at what's going on right now into a high volatility well? What should we be worried about from your view as from your very particular vantage point? Thank you, Martin. Well, first, the U.S. economy is going to do fine, banking systems in good shape. We're not experiencing the deleveraging that Europe is experiencing. We have a robust capital market that anybody could come to the market who wishes to come to the market, which is a major differential between all other regions of the world, and that we have this energy sector that is just transforming the entire U.S. economy. So the U.S. economy is going to grow three-plus percent, but it's not going to grow much faster. There's still a lot of drags within the economy, but so overall there. I think related to the overall markets, I think we all entered the financial crisis with a lot of worries, and yet after the financial crisis, markets more than doubled, and every behind it was negative, and I just hear way too much optimism now going forward. I think the experience of the marketplace this past week is going to be indicative of this entire year. I think we're going to be in a world of much greater volatility, and that doesn't mean we end up in a bad place, because I do agree with all the tonality of what has been being discussed here, because I do think the overall trend is going to be fine, but it's going to be quite a bit of disruptions. I think the marketplace has been very encouraged by what I would say good, consistent monetary policy across the world. However, for global economies to go forward, it's going to require quite a bit of governmental policy, fiscal policy, politics. We're going to have to be dependent on the execution from the Chinese on their reforms. We're going to actually have to be not looking towards Karota-san in Japan, but we're going to have to be looking towards Abe-san on the reforms in Japan. We're going to have to be looking for the reforms in the United States. We're going to have to be looking for all these reforms in every other place. That troubles me, because there has been a great consistency of dragging their feet by politicians. I think one of the main reasons why politicians today are struggling with, I would say, directness to their populate is we all are talking about the financial crisis and this jobless recovery. And it is from our opinion, the jobless recovery is a multitude of reasons we had excess housing and so much employment was informal housing in the United States. In Europe and in the United States, we have actually contracted fiscally to become, and we call it austerity, which has created much fewer federal jobs and state jobs. But then most importantly, that we don't discuss enough is the macro changes in technology and the impact of jobs. And especially the impact of jobs in the agricultural area, where it's ripping apart jobs very quickly. And so the main reason why we're seeing rising economies but stubbornly tough labor markets, we're going through another macro transition and that's the transmission of going from chiefly unskilled jobs to a need for more skilled jobs. And this transition is gonna take some time and so it's very hard to tell those men and women whether they're in India or in the United States or in Italy that it's gonna be harder for it one to get a job. And so this is why I worry about the capital markets this year because these are hard discussions to have, they take time, we can't be dependent on monetary policy. And I think this is gonna be a little more, it's gonna take quite a bit more time but overall I think the markets are gonna be fine with just a lot of volatility, Martin. So, and the volatility is due just to be very clear. A change in perceived monetary environment over leveraging of the environment that has been created by central banks, this incredibly easy money environment, so the downside, just to make it clear what you think is gonna drive this, obviously to many people somewhat disturbing notion of a really quite volatile market. Well, I think the market has been so accustomed to rising equity markets the last three years. It's been very easy to have those trends. I think my biggest fear in the marketplace when we saw it very clearly the last three days, there are so many correlated trades. So many people are along the DK, short the yen and have large positions in various emerging markets and now you're seeing an unwinding of it. I find it very interesting when I talked to a lot of governmental officials, they were very happy when capital rushes in and then they start yelling at capitalism when capital rushes out, but we're gonna have that behavior and unfortunately it's gonna require much better domestic policy in all these countries and I think in some of the emerging world where we're starting to see a lot of stresses, we should not, I think there's just too much narrative on tapering as a cause of the unrest. By and large, a lot of the unrest is bad domestic policy in some of these countries and over dependency on China. And so it's a convenient excuse to say tapering is a cause of all global evils. It's just not. On the assumption that nobody wants desperately to disagree with anything anybody has said, if they would want to, I'd really like to hear it, we'd be fun. I'm going to allow people in the audience to ask a few questions, we won't have much time, be very brief, very disciplined, say who you are and say who you want to address the question to. I'll take start with the front row, there's somebody here, could you stand up? If you want, they won't see you otherwise, please. If that's possible, right. Who are you? David DeSera from Andrew just briefs investments. I hear the US is doing very well and Europe and Japan is recovering. But when I look at the 10, 20, 30 year exchange rate, average dollar yen, 130 is today one of three and average dollar euro, we created 118 is today 135. So what I don't understand, how is it possible that the US is doing so well and still the exchange rate of Europe and Japan are significantly higher compared to the US over the last 10, 20 years? Can someone explain it to me? That's perhaps why the US is doing so well. But I will, sorry, I didn't mean that. I will come to that question. That's a very good question, which of course Larry will be able to answer to you in a blink. Somebody at the back, there's a lady in the middle there. It's all about four rows back. Could you stand up please? Then they'll find you. Could you pass the microphone please? Katrin Benhold from the New York Times. I have a question for Minister Scheuble. Now that we have a coalition government in Germany, which means you have a big majority in parliament, do you think that there's an opening for moving towards a mutualization of debt in Europe, something like Euro bonds in the next coming years? I'm glad somebody asked that question. Is there somebody right at the back? I can't see anyone right at the back. Okay, there's a lady here on the left-hand side. Just stand up please. So they can find you. Yes, please. Yes, Deborah Burling from a global, the Brazilian newspaper. I would like just to pick up on what Mrs. Lagarde said and to see if you could develop more and maybe India could talk about it too on how tapering takes place and more on the spillover in the emerging world. And if you agree that the country is affected will be because of bad policy, as Mr. Fink said. Okay, first question. If the U.S. is doing so great, why is the dollar so weak? Larry, do you want to take that one on? I've never understood exchange markets, so I'm happy to leave this alone. I actually think the U.S. has been a big beneficiary of a weak dollar. Right. I think governmental officials historically always stood up to a strong currency. I think the rhetoric has been more muted. I still think when they're pushed to the wall, they always talk about the concept of a strong currency. But I think the overwhelming reason is if you add up all the amount of money the Federal Reserve spent on quantitative easing, it just overwhelms everybody else's monetary policy and a flood of currency worldwide has created a weakened currency. And I think it's pretty simple. And it proved to be a good, successful strategy for the U.S. in having that. Nevertheless, I do believe a 136 euro from my vantage point is, in my mind, unsustainable. I think Europe needs a weaker currency to really expand on this potential economic growth. And I think when we'll see that, when you start beginning to see more aggressive tapering over the next year, and if there's any need for policy response by the ECB, I would think you would see a much weaker euro over the course of the next year. Mr. Schoibler, I don't know whether you would like to comment on the desirability of a weaker euro. I am not... I don't know who I expect to know. Mario Draghi has left, if you have seen. Sorry? Mario Draghi has left. Yes. He could answer, he could read. However, there was a question addressed to you, which is whether you feel now or in the future, possibly after a new treaty, that the mutualization of debt, euro bonds, or anything of that kind is conceivable, and if so, in what circumstances? If I got the question right, the question was whether a broader majority for the active... Because you have a broader majority, that allows you to consider ideas alike. The matter of mutualization of debts in Europe is not a matter of which majority is supporting the German government. By the way, we continue as a German government because we were very successful in last election, but the matter of mutualization of debt is in the given European structure, construction with what we have the legal basis in the given treaties, with national fiscal policies. If you want to give up any hope on structural reforms, ongoing structural reforms in Europe, you have to mutualize debt because as soon as you can take debts on the risk of others, you will not get support in any parliament for the always uncomfortable but needed structural reforms. Therefore, in the given European structure, without any treaty change, mutualization of debts, would be the end of any structural reform and the end of the way of success, we succeeded the last couple of years. Therefore, we will do not. So in other words, it helps if they're all on the verge of bankruptcy. The tapery. You can join us in working for treaty changes that's difficult to get in Europe that we will have a more common fiscal policy and we can move. But as long as we don't have, we can't. I have a sort of feeling that the British might not sign up to that treaty. Yeah, yeah, I would be ready to invite you, K.S. You're very welcome. Impact of tapering on emerging economies. Christine, the God, would you like to add anything to the on your perception of the risks there, as has been mentioned? It's already been discussed at some length. Yeah, just briefly, maybe follow up from what Wolfgang just said. It's also true that if very well done, as is recommended by Mario Draghi, a good balance sheet assessment of all banks and a good stress test would also participate in the building up of what would be needed for some mutualization of debt. So that's a good necessary steps for all sorts of reasons, including that one. On the spillover effect on emerging market economies of tapering, what we have seen in May has been much talked about. The actual flow of capitals has not been that big. Number one, number two, what we've also seen is that not all emerging markets have been affected in the same way. And in that way, markets and investors are very cunning. They look at the fundamentals of economies, they look at the strength of government, they look at the predictability of policies, they look at the policy mix, and then they decide to move in, to stay, or to move out. And there are countries that have had hardly any currency movement, and there are countries that have seen significant currency movements as a result of the talk of tapering, and then subsequently the announcement in December. But clearly what has happened in between May and December has been very beneficial to some of the countries. And India is a clear example of monetary policies as well as a reaffirmation of fiscal policies that have had an impact on how prepared the Indian economy is. That's just a for instance, because Montec is here. That's true. Thank you very much. Just one final thing I'd just like to touch very briefly on with you, Mark, Arnie. It's the, because we've got, we're sort of getting to the end of the great re-regulation, transform regulation of the global financial system. And of course we believe completely that therefore, when your work is complete at the FSB, we will have a completely robust sound, crisis-proof financial system. Would you be prepared to give us that assurance? Yeah, well I think what I'm prepared to say is that, first off, one observation, it's great that nobody asked the question about it, which is a sign of progress. Number one, it'll allow greater focus on the bigger secular trends that Larry raised and Montec raised in Christine. But just in terms of the agenda for 2014, as Prime Minister Abbott of Australia outlined on the stage, the focus is going to be to complete the job in terms of all the main aspects, remaining main aspects of financial reform. So that's the things left on Basel 3. We made a lot of progress in the last two weeks. It's the core element of ending too big to fail, which is basically a structure for bail-in-able debt across all the major institutions in changing those derivative markets and also changing the economics and the mutual recognition of regulation within derivative markets. Those three legs drive completing the job. Of course, it'll always be with us, but the focus from 2015 on, if we do our job this year, it'll be much more about implementation and iteration. And the last word means understanding unintended consequences, making changes, as we did to the leverage ratio, to the liquidity coverage ratio, in order to ensure that they don't have unintended consequences, whether it's for emerging markets or for capital markets. And you're reasonably comfortable with the idea that in terms of the capital, that the firms will have the handling of market risks, derivatives, all the rest of it, we globally, this was an agenda set in motion in 2009, and it's a big way, a big thing, because we're not gonna do much more of this in a sense, it's crisis, that you have sort of basically done the necessary job. By you, I mean you and your colleagues in the FSB. I think we have, by increasing capital requirements, sevenfold, by changing the fundamental structure of derivative markets, funding markets, and a whole new approach to liquidity and risk management, we have put in place the minimum standards necessary. I do think that the home markets, in several cases, including the United Kingdom, need to supplement those as appropriate, but in a way that's consistent with a global approach. Christine, yes, would you agree about this? I agree with Mark, and I think that a great job has been done, but because that great job has been done, there's also been a significant increase of the shadow banking world, particularly in the United States of America, and in China as well. So that's an area where I hope the FSB will continue to pay attention. Montek, do you wanna say it really brief? Very brief, no, I think the FSB has done a great job, and we've been part of it, but there are areas of concern. I mean the principal area of concern among emerging markets is it's gonna introduce a very strong home bias amongst the international banks, and that will not necessarily be to the advantage of the offshore part of their balance sheet, which actually, in many cases, may actually be stronger than the onshore, but there it'll suffer, that's point number one. Point number two is, I think the concern about liquidity is actually gonna limit the maturity transformation that banks can do, which may be good from a stability point of view, and it's probably not a bad idea where you have capital markets, but many of the developing countries don't have strong capital markets. I guess the answer is we gotta develop them quickly, but those are two areas of real concern. This is obviously not a panel on financial regulation, just such a big issue. Larry, any brief, really brief comment on this? I agree with Mark, I think the fundamentals of regulation is in place. I agree with Montek quite a bit though. I think we are going, we are struggling, in some economies it's struggling now by changing the maturity profiles of banks, and more importantly, we didn't talk about maturity profiles of insurance companies due to Solvency II, that one of the big structural issues why infrastructure investing has been so anemic is due to the movement towards annual evaluation of volatility, and therefore we are actually causing much greater problems in the developing world because of just not enough long-term capital. And finally, what you've got the last word? I would like just to add a more general remark, reminding what Larry just said before, our problems in labor markets don't result from the financial crisis, they result from the dramatic change in technology, and it's similar with the regulation. In the globalization with increasing volatility, that will go on, we will need more regulation, we will, and the problem is who is regulating because we have no global regulator, we have only, and it's difficult to get, and therefore we have to think about that we build in the globalized world, we need better regulation, and not only for financial markets, but also for financial markets. I'm gonna give Mr. Koroda, it appears, the last word. I think we can be cautiously optimistic about the global economic outlook. First, US economy is likely to grow by 3% plus this year as well as next year. Europe is finally recovering, growing, and Japan also making significant progress, and emerging economies like India, as well as China, Indonesia, and others, their economic growth rate is likely to be maintained at high level or likely to accelerate. So I think we have to be of course cautious, we have to be always mindful of downside risks, but I think we can be cautiously optimistic about the global economic outlook. I think you have given the summary that I would otherwise have given, and that's relevant to the sort of market gyrations we're seeing, the strong view on the panel is that maybe this is a bit overdone, we're gonna have a lot of volatility, but basically the world economy is recovering at last and not looking too bad, despite all the local difficulties. As I always remark in these conclusions, and the last couple of years we've had this sort of situation, it's as optimism grows that risks also grow, and I think one has to always remember that. But am I reading at this panel, is there not optimistic enough to be really dangerous? So I think I'm gonna go with the conclusion of the panel which was I think an immensely thorough review of pretty well all the issues, and I want to thank the panel very, very much for giving you and us this oversight. Thank you.