 I am now delighted to introduce the president of the European Central Bank, and I have to say it has become a tradition that you are coming here usually on Friday afternoon, and I think your life this time should be easier compared to the last years. And it is no understatement to say that President Draghi is among certainly the best educated, best experienced central bankers in the world. And of course someone who occupies one of the most critical roles in central banking, guiding the eurozone and surfer Europe as a whole. He has guided us through the worst financial and economic crisis since the Great Depression. Personally I know how you must have felt at times. Many thought it was delusional when in a book which I published just over a year ago I predicted not only the survival of the euro, but also the re-emergent emergence of a stronger Europe. Many people smiled at me at that time. President Draghi, it's my great honour to invite you now to share your thoughts on what central bankers can and should do to support growth across Europe as well as your outlook for Europe's financial and monetary system in 2014. And to moderate the discussion, I leave you in better hands than mine. I leave you in the hands of Dr. Philipp Hildebrand, Vice-Chairman of BlackRock. Please, the floor is yours, Mario. Thank you, Klaus. Thank you very much, Klaus. And thank you, Mr. President, dear Mario, for agreeing to share some thoughts about recent and hopefully future developments in the eurozone this evening. Larry Summers recently compared you to Churchill. I'm not sure you're aware of this when he said that never in the history of financial markets have so few words and even less action done so much for so many. Perhaps we can begin, Mario, by asking you to share to the audience some of your thoughts as you come back here today, your thoughts, your feelings, compared to where you were a year ago or even more so a year and a half ago, just over a year and a half ago when you said those famous words that you will do whatever it takes. Thank you. Thank you. Thank you, Klaus, for your kind words. Philip. No, Klaus. I want to thank Klaus first and Philip, too. My words were kind. Indirectly Larry as well. So now you're right, I mean, the improvement since that time has been dramatic. Just let me give you just a few numbers here. The stock markets went up by something like 50%. Not only in Europe, by the way, not only in the Euro area. The financial stocks went up 77%, 80%. The yields went up by 40% in Germany. So in a sense some help has come, still insufficient to all the people who are making savings plans for their old age, but it's still insufficient for them. They went down by 40% and 50% in Italy and Spain. The measure that is used in Germany to measure the risks of German exposure to the rest of the Euro area, the so-called target two balances, went down by something like 40% in the Euro area and 30% for Germany. So you see that from having given some peace to the financial markets, risks have decreased all across the board, both for core countries and for periphery. I'll give you some more numbers in a moment because there are other sort of dramatic signs of improvement. The other thing that we are seeing now, we've been seeing, but only in the last, I would say, three, four months, is that both this improvement in financial markets and our accommodative, very accommodative monetary policy, which has been in place since the end of 2011, as a matter of fact, with a series of operations, cuts in interest rates, long-term refinancing operations, three years for the first time, and then the OMT and then the speeches and so on, are finally being passed through to the real economy. In the last few months, we've observed a stream of survey data, which is becoming more and more solid. The latest numbers for PMI are also very good. Consumption sentiment is going up. The hard data, however, are not as sort of uniformly good as the survey data. We had some good hard data about production, industrial orders and so on, but also some not so good data. In a sense, this behavior reflects a similar behavior that took place, a second place in the United States, about a year, a year and a half ago. The bottom line of this is that we are seeing the beginning of the recovery, which is still weak, which is still fragile, and it's still uneven. It's a recovery that's primarily driven by exports, but now we see a gradual spread into consumption, but it's a recovery upon which we have a very high unemployment rate over 12%, which indeed has stabilized, but it remains very high to allow an expansion of domestic consumption. So as we say now, we've been saying this for several months, the recovery is gradually taking place, but the risks are on the downside. That's the state of affairs now. Let me make a further point, however. The ECB is given a lot of credit for what's happened, and the speech, and the words, and the actions that followed. This may or may not be true, but I think there are certainly, what is absolutely true, is that there is another set of decisions which should be credited for what's taken place, and these are the decisions that our leaders have taken in the June 2012 European Council when the banking union was decided. In this speech that you hinted at in London, I also said something that's never been reported. I said that the markets were vastly underestimating the amount of political commitment that our leaders have placed in making the euro a success, and this sentence was based exactly also on the decisions taken by the European Council at the end of June in 2012. Thank you. Thank you. To stay a bit with this positive story, two years ago, I would imagine many of you or some of you were probably thinking that the periphery might break apart in some form from the rest of the eurozone. Today, two years later, we've seen tremendous extraordinary structural adjustment in the peripheral countries, perhaps much more so than some of the international friends that are here might realize. Greece has made up all of its loss of competitiveness that it accumulated over the decade since 2000. Spain has made up more than half of it, so we've seen tremendous adjustment in the periphery. There's a recent study out by the OECD, Mario, by it's called a reform champion study that looks at all the OECD members as to who has done the most reforms in recent years, and the top four countries are, in fact, the program countries, Greece, Spain, Portugal, Ireland, and Cyprus follows pretty quickly. What you may also not know, the last country on that list is essentially Germany. So the question I would put to you, Mario, is the crisis effectively over in the periphery? And perhaps more importantly, looking forward, should we begin to worry the two years from now that our main focus in Europe will be on the core rather than on the periphery, as it has been in these past years? Well, Philip, one easy answer is that Germany comes last because they already did all the reforms that were necessary about 10 years ago. But this would not be complete answer. I think all countries need some structural reforms with an agenda that changes from country to country. Coming to the periphery, I completely agree with you. The countries that were under a program, because some of them have come out of the program, had done the most significant structural reform effort. Each one in its own domain, labor market, product markets, and so on. And even, as you said, even Greece has actually achieved very, very meaningful progress. But I don't think the work is finished. I don't think the work is finished. It should continue. And then you have some periphery countries where actually no significant structural reform has been undertaken. And then you have some core countries which also have to start doing reforms. And that's not because they have done it 10 years ago, but because they haven't done it anything. But overall, the outlook for structural reforms is by and large positive, in the sense that if you consider the situation today, and you compare it with what it was a year ago, everywhere, even in the countries that have been least active, you see that there is a very diffuse awareness of the need to do these reforms. It shows in polls, it shows in votes. It shows also, unfortunately, in a very high level of unemployment, because no question, some of this unemployment depends on the recession, a lot of it probably, but some of it depends on distortions. And unfortunately, this awareness also shows in the very high level of youth unemployment. And you ask why, since the recession was by far hit, by and large hit at the same time, different countries. In some countries, you had a high unemployment, but you didn't have high youth unemployment. There must be something in the legislation, in the liberal legislation of these countries where youth unemployment is high that discriminates against the youth. So there are many distortions, also many distortions in the product markets. The implementation of the single market legislation isn't finished at all in Europe, in the Euro area, and in the Union, and so on. So the work isn't finished. One thing that seems also to gain traction in all the Euro area is that fiscal consolidation should not be unraveled. We are seeing, we've just seen as a matter of fact that any hesitation on the fiscal consolidation path is immediately punished by markets through higher rates. So the position that I think would be a balanced one would be don't unravel the efforts that you've done in the past three, four, five years. A lot of costs, economic costs, social costs, and political costs have been paid because of this fiscal consolidation. So the progress should not be unraveled, but give a different composition to this fiscal consolidation. You know, most countries, when they started this process, they entered into this process under a crisis. And so what they did was the only thing, I guess, governments can do under a very, very stressful crisis, namely, you do the easiest thing that could help you to consolidate, namely raising taxes. The results of these fiscal consolidations so far have seen a very high increase in taxation in a place, in a part of the world, where taxes are already high. And little progress achieved on cutting government expenditure and huge cuts in capital expenditure. So now we have to make this fiscal consolidation more growth-friendly, less taxes, less government expenditure, more expenditure for infrastructure. Also we should give a medium-term perspective to this fiscal consolidation, which seems to have been successful as a way to go in the UK, for example. And finally, all this would not be sustainable through time. Growth would not be sustainable through time without structural reforms, but we have discussed about that before. So despite a lot of this good news, which may not be fully appreciated all over the world, there are, as you say, a number of issues. No growth remains very low, which is a problem we have throughout the world. Youth unemployment you refer to, I checked the data this morning, it turns out that only Germany today has a lower youth unemployment rate than at the beginning of the Eurozone. All other countries today have higher youth unemployment than at the time of the introduction of the Euro. So I'm glad you emphasized that. Inflation, of course, very important for the crucial piece of data for the European Central Bank, for any central bank, inflation, as you know, is significantly below the definition of price stability of the ECB. It's around 1% seems to be falling. Of the 17 member states, only seven have inflation above 1%. None of them have inflation above 2%. And Germany, the strongest country, has inflation currently at 1.2%. So you have said, Mario, repeatedly that you stand ready to act if need be. You've also said repeatedly that you have a full arsenal to act if action were to become necessary in the context of declining inflation further away from the definition of price stability. And I was wondering if for the audience you could shed some light on what parts of the arsenal you think might be most effective or most potent in the event that you were called to act upon further decline in inflation. Well, first let me discuss inflation. And we certainly see, as you said, that headline inflation is below, well below our objective of being close but below 2%. And this is going to be for a protracted period of time, certainly over our forecast horizon of two years. This is the last macroeconomic projection by the ECB. This is what it shows. And the next question is, is this going to be deflation or is this going to be leading us to deflation? And here I've said several times that I don't see, I don't see deflation in the Euro area. If you define deflation as that broad-based, persistent, self-feeding, falling prices, broad-based across sectors and across countries, we don't see that. We don't see that. And at the same time, we see that inflation expectations, medium-term inflation expectations remain firmly anchored at 2%. So the idea would be that now we have low inflation and then gradually it will move back again towards the expected objective. At the same time, the longer this period lasts, the higher will be the risk. And we are aware of that. And that's why recently we strengthened our forward guidance, saying that basically interest rates will remain at the present or lower level for an extended period of time. So this is the assessment. Let me try to give some perspective to the inflation in the Euro area. Well, the first thing you see is that after all, inflation is not much lower than what you have in other parts of the world, namely the United States, even though there the recovery is more advanced. The second thing is if you look back and you, well, the other thing is certainly clear, obvious to everybody, is that such weakness in global weakness in headline inflation is due to very weak price performance of food and energy. The other thing is then if you focus your attention to core inflation, you see the core inflation went down as well. But you see that that's not much different from what happened in 1999 after the Asian crisis and what happened in 2009 after the Lehman crisis. So one is tempted to infer that after financial crisis, you have a period of time with low core inflation. Also, when you look at what's been driving down the core inflation in the Euro area, you see that it's almost entirely due to the inflation rates in the four program countries that you mentioned, Spain, Ireland, Portugal, and Greece. But then if that's the case, one is tempted to say that this is, in part, is certainly lower inflation generally due to the weakness of the economic activity, but in part is probably due to readjustment in relative prices to that rebalancing which is essential for the Euro area to happen. But if that is so, this is going to be a one for all effect. So it's bound to end in the end. And that's why it's one of the reasons why we think that in the end, this inflation can go back to higher levels. So if you look at inflation as a phenomenon with a certain amount of perspective, you see that it's, well, it's certainly serious. But there are also other sides which could reassure you that in the medium term, and here the issue, of course, of how long it will last is a crucial one. Thank you. Let's turn to the banks. One of the biggest differences, of course, in the crisis response between the United States and Europe, was that the U.S. was able very, very effectively, aggressively and quickly in March 2009 to conduct the stress test and essentially remove any doubts about the solvency of the U.S. banking system, I think, at the time very courageous move by then Secretary Geithner. Europe until now has struggled with kind of getting to that point of being able to say and having the markets believe that the banking system is essentially robust. Very courageously, the ECB has taken on this, I think, historically unique exercise of the balance sheet assessment, the comprehensive assessment of the health of Europe's most important banks. We're about to go into the crucial phase of this entire exercise, which will be a vast exercise across more than 100 banks, and the results so far even in anticipation of this exercise have actually been very positive. Spreads have come in, in some cases, almost 500 basis points. If you look at CDS spreads, European banks, which many of you may not know, have raised nearly 500 billion euros in new equity. So we have seen tremendous progress in anticipation of this exercise and therefore seen some healing in market indicators. But it might be very helpful if you could just share your thoughts as to how this will play out over the next couple of months or the next year, what will be crucial elements. And I think importantly, perhaps you can say a word about the part that politics has to play in all of this. While you have a tremendous job obviously at the ECB to do this, there's a very important political dimension to this. There is a backstop that has been designed but will not actually become fully effective until 10 years from now. There's a resolution regime that has been designed and approved on the political side. Perhaps you can tell us how you feel about the efficiency of that process. And just generally share your thoughts about this upcoming comprehensive assessment, which will be so crucial, seems to me, in getting Europe to the point where the banks are no longer being questioned. And remember for the international audience here, the health of banks is a crucial element to raise output in Europe since 75 or 80% of the economy is funded through the banking system, much, much more than is the case, of course, in the U.S. Thanks, Will. You asked too many questions. I'm not sure I'm going to remember all of them. But just in case I forget, you will ask it again. The first point is, at the beginning I said many things have improved. One of them is the return of confidence in the financial markets and to some extent in the banking system in Europe. Return of confidence is spectacularly shown by the decreasing spreads between the secured and unsecured rates on the short-term side of the market. It's shown by the fact that banks are now issuing bonds in significant amounts, have been issuing bonds now for several months in significant amounts. It is shown by the fact that the spread between the non-financial corporates and financials has gone to zero. You remember that after the Lehman crisis, the issuance for banks was incredibly more expensive than for industrials. Now it's come to zero. And so there is this return of confidence. So ideally it's a much better situation to perform asset quality reviews, stress tests than it was in 2011 when markets were in a constant turmoil. Many things have happened to the banking system all over the world and to European banking system as well. You recall the amount of capital that's been generated. By the way, half of this is public money, half of this by and large, half of this was private. But also there is another effect that's taken place mostly during 2013. After the AQR had been announced, immediately many national supervisors made sure that banks would reclassify many of their loans as non-performing loans and therefore raise significantly the provisions against these loans or raise capital or deleverage. So we are entering 2014 with a situation which is dramatically better than it was a year ago. Why are we doing this? Well, we are doing this for several reasons, but one of which has to do with our monetary policy and with our capacity to have an effective monetary policy that could actually achieve the objective of our mandate, namely price stability. During the crisis and by and large during 2012 and 2013, we had two classes of banks. We had the banks in the core and the banks in the periphery. You know about fragmentation. Well when we moved interest rates, the banks in the core would translate these cuts in interest rates in a one-to-one often fashion into a cut in their lending rates. The banks in the periphery on the other hand showed much less reaction to our cuts in monetary, our cuts in interest rates. So for us the issue is also to return to having a monetary policy that's fully effective. The way to do so is to make this exercise of assessing the value of the assets that are in the bank's balance sheets. I think that's the first and foremost objective of this exercise, transparency. That's what the private sector wants to have if they have to commit money in the banking industry. That's absolutely essential. And then we'll also do some stress tests. But the most important thing is transparency. So AQR and stress tests are absolutely important for the effectiveness of our own monetary policy, for returning to see that our interest rate changes are reflected in changes in the lending rates. Now we are actually moving towards a period of time that if other things don't happen, it's actually better than last year because you see that the leveraging that has taken place in 2013 because of the announced AQR would also go down in size. The modest recovery should also affect demand for credit and therefore again we should see better credit flows which at present time are indeed very weak. So all this is favorable, would suggest favorable developments there. This operation of shedding light on the bank's balance sheets should also help them to raise capital in the private markets and should strengthen them. And of course banks that should go should go. So we as investors should we expect that some banks will fail this test and therefore go as you say? I don't have any expectation. What I'm saying is that the test is run in a very sort of I would say in a clear transparent fashion that's also why we are communicating all the parameters of this test to the industry constantly regularly. I think the next session for communicating the parameters of the stress test is going to be taking place. Well today the European Banking Association will or has already communicated the parameters of the stress test because what we do we will stick with the definition of the stress test given by the European Banking Association. We are not European Banking Agency I think. We are not creating something on the stress test. For the AQR we are already receiving. We actually have received already all the data concerning the assets that banks have in their banking books from 130 banks by and large I think 32 whatever banks. So you can imagine it's really a gigantic information flow that has started. Banks have been made in the supervisory authority. We have chair, we have vice chair and the supervisory board will meet at the end of January for in their first first meeting. So machinery is in place. This is going to take a lot of work. The aim is to make the balance sheets of banks transparent. That's the most important objective for us. If a CEO of one of those 132 banks in the future once you've taken on the responsibility of those banks will that CEO deal with only one regulator or are we moving to a more of a U.S. system where on top of the national regulator he will now also have to deal with the ECB. So in other words are we making are you making the system more efficient or are we at risk of kind of essentially copying if I may say parts of the U.S. regulatory system? No, actually it's the objective is to have let me start not so much from regulation because we already have the we already have a common design of regulation through the Commission's European Commission's directives. But the objective of having one supervisor is actually to make to harmonize supervisory practices and where national legislation has to be changed. It will be changed to this to this extent. So in in time the the goal is to have one supervisor and one regulator. I'm sure that the CEOs of the banks are very happy to hear that from you. I think we're we're coming to the end of this fascinating discussion. Let me ask you. Oh, you also asked about backstops. Yes, I did. If you wanted to answer that, I'm sure that we're going to have now the second pillar of our banking union is the single resolution mechanism. Now we have one authority. We have one concept. And the issue is about where where we'll soon have or or we don't have. We won't have soon a one fund. The current proposal for C is 10 years to have a fund. By the way, the fund is completely financed by the banking industry. So right now if there are losses, the resolution authority can count on a certain amount of money which is admittedly limited. So the issue is are the national governments going to provide the backstops or is it going to be a European fund that will provide the backstop so that there will be some break of the link between banks and sovereigns. And I think that's the focus of the discussion today. The ECB is clearly of the view that there should be an accelerated timeline for breaking this link between sovereigns and banks. The second backstop that you may be hinting is is a different backstop. When we make the AQR, when we make the asset quality review and the stress as it may well be the case that some banks will come out as weak as in the need of capital. And if they cannot find capital, what happens? Would the governments put money into them or not? Well, the banks will have to bail in some of the creditors first and then they could access to the public money. And each government is fully committed to provide money for this objective. There is a high level commitment by the leaders. There is a commitment by the finance minister. So we have no doubt that this commitment will be maintained. There are also situations where a bank, we're talking about either a bank is completely non-viable and then it should go, or a bank could be viable and it could be even in compliance with capital regulation under study conditions. But it could become non-compliant under stress, in which case it's a sort of borderline case and clearly the decision will have to be ad hoc and we'll have to take into account financial stability considerations. Thank you. Let me end this with a very short personal question. When you dream of a monetary policy occasionally, do you dream in Italian or in German? Well, it's hard to say in which language I dream. But certainly our objective is the objective of price stability. That's our mandate. And everything we've done so far is within the mandate. And when you ask me about what instruments would you use for coping with deflation, if deflation were to happen, the answer is with all the instruments that are allowed by our mandate. So you dream in German, in other words. That's your conclusion. Mr. President, I want to thank you for this wonderful opportunity. I'm sure all of us have appreciated it. Thank you very much for the extraordinary work that the ECB has done. And as you've pointed out, others have contributed as well. Good luck and grazie mille. Thank you.