Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. While inflation rates are likely to stay above 2% for the remainder of 2012, over the policy-relevant horizon we expect price developments to remain in line with price stability. Consistent with this picture, the underlying pace of monetary expansion remains subdued. Inflation expectations for the euro area economy continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. At the same time, economic growth in the euro area remains weak, with heightened uncertainty weighing on confidence and sentiment, giving rise to increased downside risks to the economic outlook.
In previous months we have implemented both standard and non-standard monetary policy measures. This combination of measures has supported the transmission of our monetary policy. Today, we have decided to continue conducting our main refinancing operations -LRB- MROs -RRB- as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the 12th maintenance period of 2012 on 15 January 2013. This procedure will also remain in use for the Eurosystem 's special-term refinancing operations with a maturity of one maintenance period, which will continue to be conducted for as long as needed. The fixed rate in these special-term refinancing operations will be the same as the MRO rate prevailing at the time. Furthermore, the Governing Council has decided to conduct the three-month longer-term refinancing operations -LRB- LTROs -RRB- to be allotted until the end of 2012 as fixed rate tender procedures with full allotment. The rates in these three-month operations will be fixed at the average rate of the MROs over the life of the respective LTRO. Keeping in mind that all our non-standard monetary policy measures are temporary in nature, we will monitor further developments closely and ensure medium-term price stability for the euro area by acting in a firm and timely manner.
Let me now explain our assessment in greater detail, starting with the economic analysis. On a quarterly basis, euro area real GDP growth was flat in the first quarter of 2012. Available indicators for the second quarter of the year point to a weakening of growth and highlight prevailing uncertainty. Looking beyond the short term, we continue to expect the euro area economy to recover gradually. However, ongoing tensions in some euro area sovereign debt markets and their impact on credit conditions, the process of balance sheet adjustment in the financial and non-financial sectors and high unemployment are expected to continue to dampen the underlying growth momentum.
The June 2012 Eurosystem staff macroeconomic projections for the euro area foresee annual real GDP growth in a range between -0.5% and 0.3% for 2012 and between 0.0% and 2.0% for 2013. Compared with the March 2012 ECB staff macroeconomic projections, the range for 2012 remains unchanged, while there is a slight narrowing of the range for 2013.
In the Governing Council 's assessment, the economic outlook for the euro area is subject to increased downside risks relating, in particular, to a further increase in the tensions in several euro area financial markets and their potential spillover to the euro area real economy. Downside risks also relate to possibly renewed increases in commodity prices over the medium term.
Euro area annual HICP inflation was 2.4% in May 2012, according to Eurostat 's flash estimate, after 2.6% in the previous month. Inflation is likely to stay above 2% for the remainder of the year, mainly owing to developments in energy prices and indirect taxes. However, on the basis of current futures prices for commodities, annual inflation rates should fall below 2% again in early 2013. Looking ahead, in an environment of modest growth in the euro area and well-anchored long-term inflation expectations, underlying price pressures should remain subdued.
The June 2012 Eurosystem staff macroeconomic projections for the euro area foresee annual HICP inflation in a range between 2.3% and 2.5% for 2012 and between 1.0% and 2.2% for 2013. In comparison with the March 2012 ECB staff macroeconomic projections, there is a narrowing of the projection ranges for 2012 and 2013.
The Governing Council continues to view the risks to the medium-term outlook for price developments as broadly balanced. Upside risks pertain to further increases in indirect taxes, owing to the need for fiscal consolidation, and higher than expected commodity prices over the medium term. The main downside risks relate to the impact of weaker than expected growth in the euro area.
The monetary analysis indicates that the underlying pace of monetary expansion remained subdued in the first four months of 2012. The annual growth rate of M3 fell to 2.5% in April, down from 3.1% in March, following strong inflows into money in the first quarter of the year. The moderation in annual M3 growth in April was mainly driven by outflows from overnight deposits belonging to non-monetary financial intermediaries -LRB- which includes entities like central counterparties, investment funds and securitisation vehicles -RRB-.
The annual growth rate of loans to the private sector -LRB- adjusted for loan sales and securitisation -RRB- declined to 0.8% in April -LRB- from 1.2% in March -RRB-, owing to negative loan flows to non-monetary financial intermediaries. At the same time, monthly flows of loans to non-financial corporations and households were moderately positive in April and the annual rates of growth -LRB- adjusted for loan sales and securitisation -RRB- stood at 0.7% and 1.5% respectively in April, broadly unchanged from March.
Money and credit data up to April provide evidence that, as intended by our policy measures, an abrupt and disorderly adjustment in the balance sheets of credit institutions has not materialised. Given the current cyclical situation and the ongoing adjustment in the balance sheets of households and enterprises, subdued credit demand is likely to prevail in the period ahead.
Looking ahead, it is essential for banks to continue to strengthen their resilience further. The soundness of banks ' balance sheets will be a key factor in facilitating both an appropriate provision of credit to the economy and the normalisation of all funding channels.
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.
Let me now make a few remarks relating to fiscal and economic policies. Significant progress has been achieved with fiscal consolidation over recent years. It is of crucial importance to continue with the efforts to restore sound fiscal positions and to regain competitiveness. These are pre-conditions for stable economic growth. As a natural complement, the implementation of the new macroeconomic surveillance framework under the EU semester is necessary. In several euro area countries, excessive imbalances exist and need to be corrected. To this end, comprehensive product, labour and financial sector reforms will help foster sustainable growth. Competition should be strengthened in product markets, not least by the completion of the Single Market, and wages should adjust in a flexible manner, reflecting labour market conditions and productivity. These growth-enhancing reforms would accelerate the necessary adjustment process and enhance job creation.
Finally, the Governing Council very much welcomes leaders at the last European Council meeting agreeing to step up their reflections on the long-term vision for Economic and Monetary Union. The Governing Council considers this a highly important step.
Question: I have two questions: first, to put it bluntly, if you are aware of the downside risks to the euro area economy and the kind of tensions that we have at the moment -- which are almost in panic mode -- can you tell us about the deliberations surrounding your decision not to cut rates today?
Question: Second, can you give us a bit of a feeling, from the ECB 's point of view, as to how functional, or dysfunctional, both the interbank market and the bond market are right now?
Draghi: I will start by saying that one has to appreciate the background against which this decision was taken today. We still have very low nominal rates and negative real rates. We also have, as you said, dysfunctional markets -- the interbank market is very dysfunctional, it is not working -- and there is a certain amount of fragmentation in most of the other financial markets in the euro area. I am saying this because, in such a situation, price signals have a relatively limited immediate effect. It is mostly quantitative signals, quantity policy measures that would address such a situation.
Draghi: Let me also give you a few reasons why, in the end, we decided to take this stance. The baseline scenario of our staff projections has not changed. At the same time, we have to acknowledge that this baseline scenario is based on assumptions, such as an abatement of financial tensions in the future and, overall an ongoing buoyancy in external demand. After the cut-off date for these projections, which was 24 May, several soft data, such as the Purchasing Managers ' Index, orders, confidence indices, have all pointed in another direction, and it is not upward. At the same time, I have to say that, during the first quarter, the hard data pointed in the opposite direction: construction production rose by 12% in March, new orders rose by 0.5%, total export and import values went up by 3% in the first quarter and German GDP growth rebounded by 0.5% in the first quarter. So you see ; there are conflicting signals. We are fully aware that the most recent soft data point to the downside, which is why you will find several references to downside risks in the Introductory Statement. We will monitor all developments closely and we will stand ready to act.
Question: Have I understood your response to the first question correctly, namely that you see the efficacy of a rate cut at this time as being rather limited? Could you also tell us if your decision on rates today was unanimous?
Question: Regarding longer-term refinancing operations -LRB- LTRO -RRB-, there are again calls for the ECB to carry out another three-year LTRO. Could you tell us if you think that that would address the difficulties we are seeing in the markets at this time?
Draghi: Today 's decision was taken by very broad consensus and the discussion was quite complete -- I gave you the basic elements in my answer to the first question. The situation that is now emerging in Europe is quite complex, and when you ask about the effectiveness of price signals, you have to keep in mind the present situation. We think they are effective, but we have to be aware that the context is one of liquidity constraints and tensions in financial markets. One has to appreciate the effectiveness of these conventional measures in this new context.
Draghi: You asked about the LTRO. We have already conducted two LTROs, which have prevented more serious credit crunches and possibly more serious disruptions to the financial and banking sectors. Not all, but many of the stress indicators are now slightly better than they were in November 2011, in spite of the recent worsening of the situation. The issue is now whether another LTRO would actually be effective. In this regard, I refer again to fragmentation: there is plenty of liquidity in some parts of the euro area and there are shortages in other parts. The question is then, why? Is this because of a lack of liquidity? Is this because of monetary policy? Some of these problems in the euro area have nothing to do with monetary policy. That is what we have to be aware of and I do not think it would be right for monetary policy to compensate for other institutions ' lack of action.
Question: We hear that you, Mr van Rompuy, Mr Barroso and Mr Juncker are in a committee to save the euro zone and will present a master plan or a road map going forward in June. Can you tell us what your precise role on that committee is, and, are you not concerned that, by getting involved in such an extremely political process early on, you might undermine the ECB 's independence?
Question: My second question is on Greek banks. You hinted in the European Parliament last Thursday that, after the capital injections, the Greek banks have access to your operations again. Can you confirm that all of the big banks have full access to regular ECB refis now? And, if not, where are the remaining problems?
Draghi: As regards the first question, we have been requested by the European Council to perform this role with the other institutions. I do not think that this will present any threat to the ECB 's independence. One has to see what the outcome will be. It is better to be part of the outcome, rather than outside the process. Having said that, work is now in progress: as you may all understand, it is potentially very important work and we will certainly contribute with all our skills and expertise to this work. In addition, we are all convinced that this work is, in a sense, the beginning of a process which will give substance to a European vision for the medium - and the long-term.
Draghi: With regard to the Greek banks, I have said that we welcome the fact that the four Greek banks which were lacking capital have been recapitalised and, therefore, have been readmitted as counterparty to monetary policy operations.
Question: I was wondering is there any way you can envisage that the Spanish banks, as requested by the Spanish government, will receive some form of help without going through the Spanish government?
Question: The other question is again on Spain. There is a lot of talk about Spain and, more generally, about the situation in the markets ; there is a lot of talk about the Commission and the long-term solutions which you are also a part of. But there seems to be very little emphasis, at least on the part of the politicians, on the" emergency '' of this situation in the final markets, as you yourself have described it.
Draghi: Let me say that, I do not view it as the ECB 's task to push governments into doing something. It is really their own decision as to whether they want to access the EFSF or not. Two things must be said: one, the first assessment of the FSAP by the IMF will soon be available -- my understanding is that it will be taken to the Executive Board of the IMF on Friday. Then we will have to wait for the independent assessment of the firms that have been hired by the Spanish government, which will be a granular assessment. I think that any decision about the EFSF should be based on realistic assessments of the need to recapitalise banks and the money that is available to governments without having to require any external support. The assessment has to be realistic and based on figures and data.
Question: I wonder, could you tell us what your response is to the result of the referendum that took place in Ireland last week, and whether, in your assessment, the result strengthens the case of the Irish government for debt relief in respect of the onerous bank rescue that is under way in Ireland?
Draghi: Let me say that, I think two months ago, one of you -- I do not know if it was you -- asked me about my expectations regarding the Irish Referendum. I said that I was absolutely confident about a positive outcome. So, I can not do anything but warmly welcome this outcome: it shows that the Irish people consider fiscal consolidation and fiscal stability to be a basic pillar for growth and further European integration. So it is really a testimony of their responsibility. And they should be complimented for this. Now, I do not think that there was any ground or any statement regarding a quid pro quo for this ; I think the decisions ought to be taken for what they are, and that is what we see.
Question: You said that there has to be a clear spelling-out of the euro vision. So what is the ECB 's euro vision? And related to that, what do you think is the minimum requirement for the outcome of the EU summit later this month?
Question: Second, if there is some progress by governments towards the fiscal union, is the ECB willing to do something to help buy time and, if so, what kind of measures could those be?
Draghi: The answer to the second question is that there has never been a ` quid pro quo ` between monetary policy decisions and these high-level decisions that concern the future of European integration and the euro area. There is no ` horse trading '. It would not be proper for us and it would not be proper for the counterparties. These processes have their own independent legislative roots and they can not be subject to the monetary policy-makers ' decisions.
Draghi: The other question concerns the euro vision. In a sense I have sketched this vision in statements in the European Parliament. Let me start from the fiscal compact. That is a major step. Countries like Spain, Italy, Portugal, Ireland and Greece, have undertaken an enormous effort and have achieved -- as I said in the Introductory Statement -- considerable progress. Now they have to continue and complete this. There have to be other parts to this. There has to be growth through structural reforms -- product market, labour market and financial sector reforms -- and there has to be an understanding that fiscal consolidation in the medium-term can not and ought not to be based only on tax increases. It has to be based on a reduction in current expenditures rather than capital expenditures. In a sense, this has to be re-focused towards reductions in current expenditures instead of expenditure on infrastructure and on human capital, both at the national and the European level. But when you talk to governments and, in general, to the citizens of Europe, you hear that this is not enough and that they do not see the benefits of this. Perhaps in some cases it is too early to see the benefits, but I also think that the full benefits could be achieved if we were to clarify what the euro is going to be in five or ten years ' time -- this is where I think the efforts of the leaders are oriented. In the next European Council we all expect a clarification of this vision. Perhaps we use the word too much, but when we say" vision '' we basically have in mind the path towards an objective with all the conditions that have to be satisfied in order to achieve this objective. If you remember, the road to the euro was very much like that. You probably were not born yet, but, unfortunately I remember that and Vítor does too. In 1988, after several failures in the process to link the exchange rates and to try to coordinate monetary movements, the first step was made towards having a common currency. There was a report, the ` Delors report '. That was later changed and finally endorsed by the European Council. The important thing as far as we are concerned today is that this report in a sense spelled out a methodology. There was a road with dates, deadlines and conditions to be satisfied. I think that is part of the efforts that our leaders and we, ourselves have to draw up today.
Question: The European Commission in the country-specific recommendations report last week on Ireland said that the risks with regard to long-term sustainability of public finances appear to be high. I wondered if you agree with this. And given that bailing out the banks in Ireland has cost something like 40% of GDP so far, how important is it for Ireland to cut the cost of this funding and when do you see it happening?
Draghi: I do not want to comment on the European Commission 's statements but I think what is meant by that statement is that Ireland has achieved remarkable, very significant and substantial progress on the front of fiscal consolidation, but also on the front of bank restructuring. The implicit message is: continue on this path. You have seen spreads going down for Ireland much more than for probably any other country. One would not be excessively optimistic if one says that if Ireland continues with these efforts, the return to market access is not a distant perspective. It could actually be closer than we all expected until, I would say months ago.
Question: Mr Draghi, you have just said that some of the problems in the euro area have nothing to do with monetary policy. I would say the only problem that has to do with monetary policy is that the inflation rate has been significantly higher than 2% for the past one and a half years. What other problems would you say have to do with monetary policy?
Draghi: I think our primary mandate is maintaining price stability in the medium term. The inflation rate has been higher than 2% for some time now, due essentially, to oil prices, commodity prices and the use of indirect taxation like value added taxes. All these factors in a sense raise the rate of inflation, but we should consider that they are one-off factors: in other words, they are an adjustment in the price levels. And only if you have second-round effects or pass-through effects you can see the effects of this in the rate of inflation. But we have seen that inflationary expectations have remained firmly anchored and now they are even more anchored than they were before. So, since we run our monetary policy with a medium-term perspective, the question we have always asked ourselves is when is the inflation rate going to go down below or close to 2%? And we had repeated oil price increases in the previous months, so this profile shifted progressively to 2013. You remember that originally we said that by the end of this year we go below 2%, then we said it is going to go below 2% in the next year -- now we have the first hints that this shifting might actually stop. And in fact we would not exclude it coming back.
Question: The question was what other problems would you say have to do with monetary policy?
Draghi: I think I implicitly responded to that. Our primary mandate is price stability and we think that if we achieve this objective in the medium term with all our necessary instruments we really contribute in the best possible way to growth.
Question: Mr Draghi, you have spoken of a medium and long-term vision for Europe. Last weekend you probably read that George Soros said that he thought the euro area had three months basically to get its act together. It seems like a lot of market participants agree. Are they overreacting? Is the situation not as serious as that or are there things that need to be done in the short term?
Draghi: I do not know if three months is the right deadline or even if it is right to say that there is a deadline. I would not see these complex processes conceptually being subject to a deadline. I do not think it is the right way to cope with these issues but certainly there is a sense of concern. I spoke before about fragmentation of our financial markets, so to the extent that these market participants express their fears, they are certainly not incorrect. What they do, however, and many observers make the same mistake, I think, is that they underestimate the strength of the political commitment by the euro area member countries. They underestimate the awareness that all of us have of the extraordinary benefits that the euro has brought, in both financial and political terms -- in terms of perspectives and in terms of achievements, because after all, the 14 years that we have had the euro have been 14 years with great price stability, with very low interest rates. So, I think that that is the mistake they make, but certainly they are not wrong about being concerned, as we are. Is a long-term vision enough? It is certainly the starting point, but then the next step is how do we substantiate this long-term vision with medium - or short-term action? I think one response is that some things concerning this financial market union could actually be achieved in a relatively rapid way. Other parts of this concept of financial market union, -- like everything that really entails mutualisation -- is probably more medium-term or long-term. But the key point is to clarify this process.
Draghi: Let me go back again to my recollections of the euro. There was a European Council -- as I said, I think it was in 1991 -- that established the euro, and accepted this role vis-à-vis the euro with conditions that had to be satisfied. And interest rates were fairly acceptable in all countries regardless of the fact that they had fairly different rates of inflation. In 1990 and 1991 you had countries with a 7% inflation rate and countries with 2% inflation rate. They were all linked by the exchange rate agreement. Then, in June 1992, we had the Danish referendum, which really called into question the whole objective of this path -- the end point -- and in a sense it kind of upset the whole process, because people did not know how to cope with this result, which was contrary to having the euro at that point in time. Immediately interest rates jumped by several percentage points over two months. Immediately risk spreads widened, varying the risk in different countries according to their inflation rates, the state of their deficits, the state of the level of their debt, and so on. That is why I believe that the very fact of having an objective, a goal, an end point and a clear path would, by itself, contribute to a stabilisation of the financial situation in Europe. I think that people are concerned, also because if we look around and we do not look beyond the short term, we only see signs of nervousness. So the concern is right, it is true, but I think it can be coped with by specifying, by clarifying what this vision is.
Question: You said that the decision today was not unanimous. Were there some members on the Council asking to lower the main interest rate? Can you clarify this point?
Draghi: A few members would have preferred to have a rate cut today. I would say not many.
Question: You said that price signals are maybe not efficient at this time, given the background you explained to us.
Draghi: No, I did not say they were not efficient or not effective. I said that the effectiveness of price signals has to be evaluated in a context that is very different from what it was two years ago ; a context where you have dysfunctional or basically not-functioning interbank markets and where you have very different sovereign spreads. But I would not say that this is a reason for cutting or not cutting rates today. It is a reason for studying carefully what the effects of these price signal, which belong to conventional, traditional monetary policy, would be in an ` unconventional ', financial market setting in Europe today.
Question: You have just acknowledged that there was a discussion about an interest rate cut this time. Could you clarify what the ECB 's position is about the zero bound? If you were to cut interest rates say next month, would you also lower the deposit facility rate to zero as well?
Question: And the second question: you also left open the possibility of another three-year LTRO. I should also ask about the Securities Markets Programme because the demands have got louder for a reactivation of the SMP. Yields on Spanish government bonds, as you know, are back at levels we saw last July and August when the ECB did intervene. Is that also a possibility in the coming weeks and months?
Draghi: I think experience actually teaches only up to a point, because it is very difficult to respond to these questions.
Draghi: For the second question I would say the standard response, that is to say the monetary policy instrument, is there." It is temporary, it is not infinite '' applies to both the SMP and the LTROs. There is a certain economy of scale with this, but basically I think that is all I can say on this. .
Draghi: The first question, as you said actually very correctly, I can not answer, because we never pre-commit.
Question: You have extended some of your liquidity provisions for banks and there is the possibility of another three-year LRTO. One of the problems of some banks, especially in countries which are most subject to the crisis, is collateral. You have already significantly extended the possibilities for posting collateral. Do you think that there is scope for a further extension of collateral and for the lowering of requirements?
Question: Secondly, roughly two months ago, you said that the worst of the crisis was over. Do you think that this assessment was correct in hindsight and would you repeat it? If not, how would you characterise where we are presently in the crisis?
Draghi: On the first question, we have to assess exactly what the funding conditions of the banks are. We do not think that all the opportunities offered by the second LTRO have been fully exploited. As I said many times, the two operations are so significant in size and so complex in their effects that we do not think that all their effects have been exhausted. We will look at how the funding conditions proceed, and then we will make up our minds. Also, we have to assess whether all the opportunities offered by the broadening of the collateral eligibility have been used, and then we will see. The point I want to make, and have made repeatedly, is that the ECB will keep the liquidity lines open to banks and we 'll have to see the collateral issue.
Draghi: With regard to your second question, I remember someone saying that his comment ` would haunt him for the months to come '. First of all, let me say that the actual statement was not exactly" the worst is over ''. It was the" worst is over, but there are serious downside risks ''. The" serious downside risks '' were taken off the sentence, and I was represented as having only said the first part. The fact is that when I made the statement, it seemed that all the signals of tensions in the financial markets after the incredible situation in November and December were about to fade away rapidly, which they did, and now they are worsening again. We are not yet at that level, however. This is the first point - The second is that to some extent we believe that the possible weakening of the economy of the euro area might be due to a credit contraction that actually started last year. And we may have to go back to July/August when this credit contraction started, because, ahead of them, in the first quarter of this year, banks had a very serious funding situation. You remember there were $ 230 billion of bank bonds coming due in the first quarter, and on top of this you had about $ 300 billion of sovereign financing needs for this first quarter. You could see credit flows going down well before the end of the year. In this sense, credit flows seem to have stabilised. We have to make a distinction, because the complete figures for loans, as I read in the introductory statement, still has a negative growth rate ; but when you look at the details, you see that loans to non-financial companies are actually timidly positive, and loans to households are also positive. I think this is the first month that both components are positive, whereas last month we had negative growth rates for loans to corporates and positive for households.
Question: There seems to be concern, especially outside Europe, that the debt crisis here is starting to have real economic effects in other parts of the world, not just the euro area -- in hard data, as opposed to just confidence, for instance, data on employment and output. Do you share those concerns?
Question: And what would you say to people who are not in the financial markets, citizens in other countries who might be angry or concerned that the debt crisis here is starting to affect their employment prospects, their retirement savings? What kind of message would you send to them?
Draghi: Well, on the capacity of the European economic crisis to affect the rest of the world, on the one hand I think this has to be right. There are some elements of this crisis that unavoidably affect others. We are the second richest economy in the world, so if this economy weakens ; we are certainly going to have some impact on the rest of the world. But if we take this line of reasoning too far, we end up saying that the United States is actually a" small '' open economy, which I never thought it was. So, I do n't think we should take this line of reasoning too far, i.e. to suggest that all the problems of a country with a high and rising deficit, with high levels of public debt and so on, that all of these problems depend on Europe. However, as I have said, there is also an element of truth in this. We say that the general financial market tensions are certainly related to the financial market tensions in Europe. In other words, the transmission that takes place through financial channels is perhaps stronger than the transmission that we see through the traditional multiplier effects. So Europe may have some responsibility, but these countries have their own responsibilities, their own policy problems which have still not been addressed and are still unresolved. So I do not think it is balanced to say that only Europe has responsibility. I think that all of us -- and this is perhaps going to be the main message of the upcoming G20 summit, which is going to take place in a few days in Los Cabos in Mexico -- all countries and all areas have to work together. They need, first and foremost, to address their own problems, and then they should worry about their policies or lack of policies spilling over to the rest of the world.
Question: If the ECB brings the main interest rate below 1% -- and it seems, from what you have said, that this might be the case next month -- that would mean that the main interest rate would be lower than it was right after the Lehman Brothers crisis. Does that perhaps send a signal that the situation is as bad as it was then, if not worse?
Question: And a second question, if I may how would giving to the ESM a banking licence be viewed in light of the prohibition on the ECB financing governments?
Draghi: On the first question -- whether the situation is like it was at the time of Lehman Brothers ' collapse -- the answer is no. The answer is no. We are rightly alarmed that there has been stress in the markets, and some of the indices that seemed to point to the stabilisation of financial markets until, say, three weeks ago, are now increasing again. But I would say that we are still a long way from that situation. From a long-term perspective, if I had to define the main difference between then and now: that episode was a major banking failure coupled with a pre-existing financial crisis of global proportions and, frankly it took us a while to understand, how it was spreading and what were the main causes. So, it took us time to understand the financial crisis, and it took us time to understand how to manage a failure as big as Lehman Brothers '. The situation now is different in a sense because, to a large extent, we know exactly what the problems are. I think that 's the main difference between now and then, so I do n't think the situation is nearly as bad as it was.
Draghi: On the ESM, the ESM Treaty currently prevents the ESM from recapitalising banks directly. So, we have to keep in mind that this is what the ESM Treaty says. Would it be better for the ESM to recapitalise the banks directly? From one perspective, the answer is yes, because the ESM could recapitalise banks without the debt of the country increasing. But there are certain other aspects of this that should be appreciated. The first aspect is the fact that the ESM would then take on the shares of the banks that it recapitalised. Then the issue is, do you really want to have an ESM that becomes a shareholder in banks? It is difficult to answer with a yes or no, but have we designed the ESM with the aim of it becoming a shareholder in banks in the euro area? So, the answer is, if we want the ESM to become a shareholder then we have to make changes to the ESM. The ESM was not intended to act in that way. I think that is one answer. The other answer is that usually people say" no, no, no ! '' This is not necessarily true. You can have the ESM recapitalising banks with the proper conditionality enforced at the financial sector level, at bank level, even at government level, because there 's nothing to prevent that. But again, we have to rethink the operational processes of the ESM if we want the ESM to do these things.
Question: Mr President, speaking of reforms, Italy has passed an important market labour reform. Are you satisfied with this reform?
Question: And second, related to the EFSF and ESM, you once launched the idea of acting on behalf of the EFSF and ESM. Did somebody meet your request or answer this, because I am not aware of anything happening?
Draghi: On the first issue, it is very difficult for me to respond because the labour market reform is now being discussed in the Parliament. So, we will have to see what comes out of the Parliament before I can express a view on that.
Draghi: On the second issue, yes, the ECB has been asked by the leaders to act as an agent. All the work and the preparation for this have been undertaken and so, we stand ready to act now.
Question: In emerging markets, governments and investors, as the colleague said before, are really worried about contagion effects if the crisis escalates. And economies are already suffering. In that sense, they are looking to the ECB for signs of confidence. At this point in time, what kinds of instrument can the ECB use to avoid this kind of large-scale contagion that governments and investors fear in the emerging markets?
Question: And second, along the same lines, besides clarifying the vision for the euro, which is kind of a medium-term and long-term measure, what kind of measures can be taken right now, in the short term, to avoid the escalation of the crisis?
Draghi: I think that the second answer really responds to the first question as well. I do not think that there is a silver bullet for this. The ECB will continue to act to have its monetary policy oriented to price stability in the medium-term. We think that this is our best contribution to growth for both the euro area and our trading partners in the rest of the world. As I think we have seen from our exchanges in this press conference, the crisis is the product of many, many factors. Some of them have their roots in the national policies ; others have their roots in the fact that our integration process has now reached a point where it has to question itself and decide whether it wants to move further or not. So, I think that is another reason for the crisis. But one should also remember, in the emerging countries, that Europe is not at the root of all the problems. It may seem that Europe is the source of problems that Brazil or China might have -- and I think that there is maybe a grain of truth in that -- but I would not say that the reason why the global economy might weaken in the near future is because of Europe only.