Introductory statement to the press conference (with Q&A)

Mario Draghi, President of the ECB,Vítor Constâncio, Vice-President of the ECB,15 April 2015

Jump to the transcript of the questions and answers

Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference.

Based on our regular economic and monetary analyses, and in line with our forward guidance, we decided to keep the key ECB interest rates unchanged.

As regards non-standard monetary policy measures, on 9 March we started purchasing euro-denominated public sector securities as part of our expanded asset purchase programme, which also comprises purchases of asset-backed securities and covered bonds. Purchases are intended to run until the end of September 2016 and, in any case, until we see a sustained adjustment in the path of inflation that is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term. When carrying out its assessment, the Governing Council will follow its monetary policy strategy and concentrate on trends in inflation, looking through unexpected outcomes in measured inflation in either direction if judged to be transient and to have no implication for the medium-term outlook for price stability.

The implementation of our asset purchase programmes is proceeding smoothly, with volumes in line with the announced figure of €60 billion of securities per month. In addition, there is clear evidence that the monetary policy measures we have put in place are effective. Financial market conditions and the cost of external finance for the private sector have eased considerably over the past months and borrowing conditions for firms and households have improved notably, with a pick-up in the demand for credit.

Looking ahead, our focus will be on the full implementation of our monetary policy measures. Through these measures, we will contribute to a further improvement in the economic outlook, a reduction in economic slack and a recovery in money and credit growth. Together, such developments will lead to a sustained return of inflation towards a level below, but close to, 2% over the medium term and will underpin the firm anchoring of medium to long-term inflation expectations.

Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP in the euro area rose by 0.3%, quarter on quarter, in the last quarter of 2014. Domestic demand, especially private consumption, continued to be the main driver behind the ongoing recovery. The latest economic indicators, including survey data up to March, suggest that the euro area economy has gained further momentum since the end of 2014. Looking ahead, we expect the economic recovery to broaden and strengthen gradually. Domestic demand should be further supported by ongoing improvements in financial conditions, as well as by the progress made with fiscal consolidation and structural reforms. Moreover, the lower level of the price of oil should continue to support households’ real disposable income and corporate profitability and, therefore, private consumption and investment. Furthermore, demand for euro area exports should benefit from improvements in price competitiveness. However, the euro area recovery is likely to continue to be dampened by the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms.

While remaining on the downside, the risks surrounding the economic outlook for the euro area have become more balanced on account of the recent monetary policy decisions, the fall in oil prices and the lower euro exchange rate.

According to Eurostat’s flash estimate, euro area annual HICP inflation was -0.1% in March 2015, up from -0.3% in February and -0.6% in January. This pattern largely reflects an increase in oil prices in euro terms since mid-January. On the basis of the information available and current oil futures prices, annual HICP inflation is expected to remain very low or still negative in the months ahead. Supported by the favourable impact of our monetary policy measures on aggregate demand, the impact of the lower euro exchange rate and the assumption of base effects and somewhat higher oil prices in the years ahead, inflation rates are expected to increase later in 2015 and to pick up further during 2016 and 2017.

The Governing Council will continue to monitor closely the risks to the outlook for price developments over the medium term. In this context, we will focus in particular on the pass-through of our monetary policy measures, as well as on geopolitical, exchange rate and energy price developments.

Turning to the monetary analysis, recent data confirm the gradual increase in underlying growth in broad money (M3). The annual growth rate of M3 increased to 4.0% in February 2015, up from 3.7% in January. Annual growth in M3 continues to be supported by its most liquid components, with the narrow monetary aggregate M1 growing at an annual rate of 9.1% in February.

Loan dynamics also gradually improved further. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) was -0.4% in February, after -0.9% in January, continuing its gradual recovery from a trough of -3.2% in February 2014. In this respect, the April 2015 bank lending survey confirms that improvements in lending conditions support a further recovery in loan growth, in particular for firms. Despite these improvements, the dynamics of loans to non-financial corporations remain subdued and continue to reflect the lagged relationship with the business cycle, credit risk, credit supply factors and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) increased further to 1.0% in February 2015, after 0.9% in January. The monetary policy measures we have put in place should support further improvements both in borrowing costs for firms and households and in credit flows across the euro area.

To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirms the need to implement firmly the Governing Council’s recent decisions. The full implementation of all our monetary policy measures will provide the necessary support to the euro area recovery and bring inflation rates towards levels below, but close to, 2% in the medium term.

Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance contributes to supporting economic activity. However, in order to reap the full benefits from our monetary policy measures, other policy areas must contribute decisively. Given continued high structural unemployment and low potential output growth in the euro area, the ongoing cyclical recovery should be supported by effective supply-side measures. In particular, in order to increase investment, boost job creation and raise productivity, both the implementation of product and labour market reforms and actions to improve the business environment for firms need to gain momentum in several countries. A swift and effective implementation of these reforms will not only lead to higher sustainable growth in the euro area but will also raise expectations of permanently higher incomes and encourage both households to expand consumption and firms to increase investment today, thus reinforcing the current economic recovery. Fiscal policies should support the economic recovery while remaining in compliance with the Stability and Growth Pact. Full and consistent implementation of the Pact is key for confidence in our fiscal framework. In view of the necessity to step up structural reform efforts in a number of countries, it is also important that the macroeconomic imbalance procedure is implemented effectively in order to address the excessive imbalances as identified in individual Member States.

We are now at your disposal for questions.

Question: I was hoping to ask you about Greece, Mr Draghi, and I was wondering in particular, there have been some reports that you’ve extended the ELA for Greek banks. I was just wondering how much further you can go with the ELA, and is there any upper limit to what you can do in that regard?

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Draghi: I think the answer to your question is entirely in the hands of the Greek government. As you know, we approved the ELA and we’ll continue to do so, extending liquidity to the Greek banks while they are solvent and they have adequate collateral. So far, we have reached an exposure to Greece of €110 billion, which is the highest in the euro area in relation to GDP. So from this viewpoint, we have always been and we continue to be a rules-based institution.

Question: My first question is on QE. You have said on a couple of occasions that you don’t foresee any problems in fulfilling the €60 billion target in the QE programme, and that so far, no problems have arisen. Should issues of scarcity arise in the coming months, maybe towards the end of the year, because of the yields going down in Germany below the deposit rate, how do you plan to address this eventual scarcity further down the road?

My second question is, in your opening statement you said that you’re now going to look at trends in inflation in assessing the success of the programme. Could you elaborate a bit on that, please?

Draghi: The worries about potential scarcity of government bonds, sovereign bonds, to be bought under our purchase programme, are just a little exaggerated. We don’t see problems. All, both direct and indirect evidence, and market feedback, show that there isn’t any problem. And our programme is flexible enough in any event to be adjusted if circumstances were to change. Also, some of these worries have been motivated with the need that some banks will have to retain sovereign bonds for complying with the liquidity requirements, the regulatory liquidity requirements. It’s also not quite clear why this should be a worry because government bonds are used for liquidity, as well as cash is used for liquidity, so if they sell bonds, they get cash. From a regulatory perspective, it shouldn’t change, unless I’m mistaken, but by and large, we believe that these worries are, to say the least, premature, certainly not supported by the current evidence.

Yes, to the second question, you’re absolutely right. There is a sentence which was here, but basically, it’s an explanatory sentence that gives the meaning of a sustained adjustment. When we say, ‘until we see a sustained adjustment in the path of inflation that is consistent with our aim of achieving inflation rates below but close to 2% over the medium term’. The sentence that you rightly identified explains what we mean by that, by sustained, by medium term. We’re not going to be judging or assessing on the basis of point-in-time observations. That’s what the meaning of this sentence is. There has to be looking through unexpected outcomes in measured inflation in either direction if judged to be transient and to have no implication for the medium-term outlook for price stability.

Question: My first question is about the BLS. As you have said, the credit standards on loans to enterprises have improved in all euro area countries, except in Spain. Do you have an explanation for that?

My second question is, every day you speak here about the need for structural reforms, and recently I have read that you have mentioned Spain as an example for reforms, but Spain has a 24% unemployment rate, and the reduction is quite slow. Do you think that Spain needs some more reforms?

Draghi: On the first question, the bank lending survey is done over 142 banks in the euro area, and this time, more strongly than on previous occasions, banks have been reporting better credit standards, better credit conditions. Also, when we look at the composition of these answers, we see that the risk aversion factor, which used to be a stronger limit to credit expansion, has lost a lot of its weight, if not all. We see that the return of demand for credit is also a factor in this positive assessment that the bank lending survey gives, and we see also that the return of competition amongst banks is playing a factor in this credit expansion.

Having said that, this progress is uneven. As you rightly said, there are countries where this is more visible, and countries where this is less visible. Spain is not the only one where this progress in credit standards is less visible. However, it’s a matter of time. We see how our monetary policy measures are finding their way through the economy; namely they’re being passed through, through the banking channel to the real economy, and I will expand, if there are questions on this later on.

On Spain, it’s I think beyond question, the fact that the Spanish economy is experiencing a strong and an employment-rich recovery, and almost half a million jobs have been created since the end of 2013. It’s also unquestionable that this progress has been supported by important labour-market reforms undertaken since 2012. To sustain these developments, enhance conditions for hiring youth and long-term unemployed and reduce, that’s a key point, reduce the still elevated duality of the labour market. Certainly, as you suggest, you seem to say, further action is needed on strengthening active labour-market policies.

Question: You mentioned the purchases going until the end of 2016 and in any case until you see a sustained adjustment in the inflation path. Does that mean that the purchases could end or taper even before 2016 if you have inflation developing in a way where it rises faster than you expected, or is this something that you can rule out, and you’ll go to September 2016, no matter what?

My second question, back to Greece, is there, not the limit on the size of the ELA, but a limit in terms of the calendar, how long you can keep doing this, given the delays in coming up with a financing solution for Greece, could you at some point say there’s going to be a certain date, and after that, we won’t do ELA anymore?

Draghi: No, the answer to the second question is, no. There isn’t any date. It’s entirely depending on the conditions that will be in place, that are in place, and clearly, the answer to all these questions about ELA and further prosecution of ELA is entirely in the hands of the Greek government and the negotiations that are taking place between the Greek government and euro area members.

The second question is, I should re-read my introductory statement, because it says everything. Purchases are intended, intended, to run until the end of September 2016. Some of you, when I first used the word intended, rather than expected, rightly pointed out the difference between the two concepts. This was at the beginning of December last year, in an introductory statement where we changed the word, and that was meant, and was accepted by markets, as being a powerful signal of changing the monetary policy. So, purchases are intended to run until the end of September 2016, and in any case until we see a sustained adjustment in the path of inflation that is consistent with our aim of achieving inflation rates over etc etc, and then there is this new sentence explaining exactly what we mean by sustained and by medium-term. I don’t think it’s the case now to go beyond this. I’m quite surprised, frankly, by the attention that a possible early exit of the programme receives, when we’ve been in this programme only a month, and like a colleague of ours said today, during the discussion in the Governing Council, he said, you know, he has run several marathons, it’s like asking yourself, after 1 km, are we going to finish this marathon? So, it’s very much like that.

Question: I would like to get back to the inflation trends. You explained what you meant by that, looking at the medium term and ignoring one-offs, but isn’t that the way that the ECB has always conducted monetary policy? So why are you explaining this to us again, or is there any change in your reaction function, and if so, could you please explain that to us?

My second question is on Greece. Has the Governing Council at all discussed increasing the haircuts on collateral the ECB accepts on Greek sovereign debt in ELA, and can you perhaps give us an idea of how likely you think such a discussion will become in the days ahead?

Draghi: On the second question, the haircuts on Greece were mentioned in today’s Governing Council. Mentioned, not discussed. And why is this? Because we decided, the Governing Council decided to carefully monitor whether conditions would warrant a change in the current schedule, taking into account the change in environment. So, we will come back on this issue in due time.

On the first point, there is no change in our reaction function, not at all. If you meant to say that we are consistent with our previous monetary policy strategy, yes, the answer is yes, we are consistent. So why have we felt the need to explain more? Because we are talking about unconventional instruments, so the more we explain, the better these instruments will be understood by you, by the markets, by public opinion.

Question: Two questions on Greece. What specific forms would Athens need to table in the coming weeks, for yourself and the rest of the Governing Council, to consider reinstating the waiver on Greek government debt, and would it be possible for you to explain the specifics of what happens to ELA support in the event that there is some, default by Greece to its international creditors?

Draghi: Well, I’ll quickly and readily answer the second question immediately, saying that I don’t even want to contemplate that, and based on the Greek government leaders’ statements, this option is not contemplated by themselves as well, so I’m not ready to discuss any possible situation like that.

On the waiver, let me say this once again, the ECB lifted the waiver because the conditions for a successful conclusion of the review were not there, and the precise statement that I used at that time and I’ve used on and on and on, and everybody has used, is that to reinstate the waiver, there must be a credible perspective, a credible perspective for a successful conclusion of the review under the current arrangements. So, having said that, the Governing Council will assess the existence of this credible perspective in total independence, and of course we are ready to reinstate the waiver if the conditions are there.

Question: I have two questions. One, also going back, on the potential scarcity of bonds, would you ever consider lowering the deposit rate if you came to such a scenario that more and more bonds trade in negative territory when it comes to their yields?

Also, I would like to get your assessment, how concerned are you about a bubble in the bond markets, looking at the increasingly negative yields in the bond markets? According to Goldman Sachs, more than 42, or 42%, are actually now in negative yielding territory.

Draghi: The answer to the first question is no. The answer to the second question, we are certainly aware that a protracted period of time with very low interest rates is potentially conducive to financial stability imbalances. So we are carefully monitoring developments. So far, we have not seen evidence of any bubble. There are certain conditions that would lead people to think there may be a bubble that we have seen before the crisis started, one of which is a serious, significant increase in leverage. What we observed was an increase in debt in the banking sector, and we are not seeing that. We are not seeing an increase in leverage accompanied by sustained bank credit development. But certainly, and if we were to assess that financial imbalances are forming, the first line of defence of course is the use of macro-prudential instruments. To the extent that these imbalances are somewhat localised, that’s the answer. So the answer is not change your monetary policy stance. The monetary policy stance is determined by our objective to reach price stability.

Question: Going back to the issue of bond scarcity. I just wanted to ask, you said the programme is flexible enough to be adjusted should you encounter any complications, but there are actually a lot of rules to this programme, the deposit rate, the capital key, and there’s the issue limit. You just said that you won’t lower the deposit rate, so which rules would you consider dropping, should there be any issues?

The second question would be about the euro. Are you comfortable with the current euro level, and at which level would you consider that there’s a risk of overshooting the ECB’s inflation target in the medium term?

Draghi: I would say that there’s one word which in a sense puts together these two questions; they’re premature. To ask about scarcity in the bond market is really premature. We really don’t see any such phenomenon. It’s also impossible to answer what would one do in case something that’s not evident at all were to materialise, and it would be very difficult to answer this question now. We would have to see, what sort of scarcity, where, who’s actually scarce of these bonds, but so far, frankly, we don’t have any evidence that this might happen in the future, but it’s always good to ask difficult questions. It just forces one to think.

On the second question, as I’ve said many times, the exchange rate is not a policy target. We view the current developments, the current and recent developments of the exchange rate, as the outcome of different monetary policy cycles in different jurisdictions, and the monetary policy cycles in turn depend on the different business cycles in the different jurisdictions.

Also, just let me add one thing about the exchange rate and its relation with inflation. It’s not obvious, and that is one of the things that look more and more apparent in the analysis, it’s not obvious what is the pass-through between changes in the exchange rate and the inflation rate. For example, we are seeing that previous appreciations of the exchange rate still have an effect on current inflation. So this pass-through will happen, pretty sure, and it is happening actually, so that right now, we are seeing two competing effects. The lagged effect of previous appreciations with the incipient effect of the recent deprecations. I’m saying this because it’s something that’s not easy to assess, and it’s gradual. It’s taking place very gradually

Question: My first question was on inflation expectations. You have stressed in the past several times the importance of the five-year/five-year break-even inflation rate. This indicator has stabilised but it has not shown any significant increase, and are you disappointed by that fact?

The second question is on the German current account surplus. A couple of days ago, you stressed that this high surplus clearly violates EU rules, and also in response to that, the German finance minister has said that the reason for this surplus is also the expansionary monetary policy and the weaker euro. So do you feel also responsible and guilty for the German surplus?

Draghi: The answer to the second question is no, we don’t feel responsible for that. We have a mandate, and the only responsibility we feel is if we are not able to comply with our mandate.

On the first question, let me just read through a few data about inflation expectations. Just also answering previous questions about when would you assess that you are in a certain situation, so that you will change monetary policy stance. As I said, it’s very, very early to say anything like that, but also, let me give you an idea of what may come out in a certain amount of time from now. First of all, we’re not bound by one specific indicator. We’ll be using a variety of indicators about inflation expectations. And second, if history and experience tells us something, it’s very unlikely that the Governing Council will choose a route with clear quantitative constraints in its decision-making. If you look back, and you look at our forward guidance, how that was different from the forward guidance that was stated in other monetary policy jurisdictions. This will give you good hints of what may come out; it’s going to be mostly a qualitative process and based on several indicators.

If we go back and look at these indicators, that’s very important, for a reason that I will say in a moment. A one-year forward swap rate, one year ahead, the average in 2014 was 0.46 inflation expectation. Now it’s 0.94. The two-year ahead, same indicators, was 0.66 in 2014. Now it’s 1.16. The four-year ahead, same indicator, was 1.28 in 2014. It’s now 1.53, and as we move forward, if we go to nine-year ahead, for example, was 1.73 on January 15, now it’s 1.87. The five-year swap rate was 0.57, as an average of 2014. It’s now 1.20. Most indicators actually moved up dramatically. The longest, to some extent the longest time-defined indicators moved up too, but less dramatically. This is very important, so that’s why I spent time in reading these numbers, because that accounted for a significant decrease in real interest rates.

You may remember when last year in December, I did mention the fact that in a zero lower-bound situation, where nominal interest rates are at lower bound, what determines real rates are movements in inflation expectations. In December, they were still trending down, and real rates were going up, so much so that I think they started to parallel between our most recent decisions about lowering nominal interest rates and the decrease in inflation expectations, and I did say that the recent, then recent, changes, decreases in inflation expectations, had actually nullified our monetary policy decisions taken in the previous months of lowering nominal rates. Now we are in a completely opposite trend, and real interest rates actually declined, and that’s certainly very supportive of the real economy. That’s why I’m saying that we start seeing a pass-through from our monetary policy decisions to the real economy, through significantly lower real interest rates.

Question: I want to ask you if a statement made by John Williams, the President of the San Francisco Fed, suggests that there was an overall impact of quantitative easing in 10-year/10 year US treasury bonds of about 15 to 25 basis points. What metrics should we use to measure the effectiveness of the European quantitative easing? Is it inflation rate? Or is it some other benchmark?

And the second question, do you see an expansion of the eurozone sooner than 2020, as some countries are there in terms of the Maastricht criteria, but in terms of real convergence they are still behind, lagging?

Draghi: On the first question our metrics are essentially the inflation expectations and in the end actual inflation. That's the only way we define our objective. That is the metric we use. And so far developments have been on the right side, because as I said before real interest rates declined significantly.

To the second question I just take note of what you said but there are procedures for the eligibility to be a member of the euro area. So, I have very little to add to that. There are criteria that all countries have to comply with at the time of accession to the euro area. And even recently countries that have entered the euro area had to go through this and comply with these criteria.

Question: Mr Draghi you've reiterated many times how monetary policy is not enough alone and how the speedy adoption of structural reforms is crucial to competitiveness and sustained growth. So my question is this, with only 22% of country-specific recommendations fully implemented at present aren’t you a little worried we are pumping air into a flat tyre without fixing the puncture first? Or, are you seeing now governments react to your call and start to take more action in this sense?

Draghi: Well that data is indeed quite troubling. I think if we are to run the same survey now we would probably find a better number. There has been some improvement. But it's very important to understand that our expansion in monetary policy finds its natural complement in structural reforms. Some people argue, and you certainly have heard them argue in this way, that accommodative monetary policy removes the incentives for governments to undertake structural reforms. It's just the other way around. Monetary policy actually accompanies -- there is a dividend from a combined expansion of monetary policy and the right structural reforms.

But there are good reasons for doing structural reforms without too many questions. And the main reason really is that we are in an area where potential output is bound to grow modestly given the demographics, the aging population, the decline in the labour force. At the same time European Commission figures show that there is an average structural unemployment rate in the euro area of 11%. And that's an average, which means that some countries and we know which, have an unemployment rate of around 20% or even above 20%. And they had this high unemployment rate even before the financial crisis. That's why there is no other way than undertaking the needed structural reforms.

One reason why they are also important was quoted in the introductory statement. One argument is, yes, structural reforms. We have to see which structural reforms we talk about because there are reforms like the change in the education system or the judiciary and so on which are completely different. But the argument which we hear often is that structural reforms in the long run may produce some positive effect on output growth; in the short run they actually don't.

One of the reasons why this may not be entirely correct is that good sound structural reforms actually raise expected permanent income, expected permanent income and therefore have an effect immediately on consumption for firms for households and on investments for firms. That's what I read in the introductory statement. So that's why there shouldn’t be any doubt about doing structural reforms.

Question: I wondered if you could just maybe elaborate a little bit more on the effects of quantitative easing that you've seen now that it's been going on for a month. For example, how much did quantitative easing contribute to the improvement in the lending survey yesterday? Are there any other transmission effects that you're observing? And also you addressed the question of bubbles a few minutes ago, are there any effects that worry you at all?

Draghi: Well to the second question I really can repeat my answer I gave before. We are aware that very low interest rates for a very long time are a fertile terrain for financial stability imbalances. We've seen that in the past and we are aware that this is a risk. So that's why our monitoring of this aspect of our monetary policy is continuous and it's very, very careful. Having said that, we don't see at this point in time evidence of systemically large financial stability imbalances.

Finally the first line of defence to that is use all your macro-prudential instruments. And there is a lot of work going on as far as macro-prudential instruments are concerned both in the ECB, in the ESRB, in EBA. All agencies are actually thinking, and national authorities of course, are thinking about this because as you know, the implementation of these macro-prudential instruments is in great part at national level. Of course, the ECB can top-up on that and coordinate certainly all this, but it's mostly at national level.

On the first question, first let me say that the revisions to previous forecasts for growth had been very significant. The first was the ECB revision of course, which raised from 1% for 2015 to 1.5% and for 2016 about the same from 1.5% to 1.9%. All other institutions since then have come out with revisions in the same direction, not of the same amount but in the same direction. So all institutions now see the prospects for a recovery.

As I said the downside risks are still there, but they are diminished. The issue now is to firm up this recovery and create conditions so that it's sustained through time that it's not only cyclical but becomes a structural recovery. The recovery is certainly due both to our monetary policy and that's because our monetary policy, accommodative monetary policy stance, which has been in place a long time before we actually did QE, is finally finding its route through easier credit conditions and significantly lower real interest rates. At the same time, and here it's not clear, which is the channel of causation. Certainly the monetary policy stance helped but there must be other factors. Both consumer and business confidence have picked up creating a very positive climate for a continued recovery.

There is a second aspect in which the monetary, even the recent monetary policy decisions have been important. You remember when we experienced this dramatic fall in oil prices there were many worries that there may not be all that pass-through into higher spending but actually the opposite could take place having negative second round effects on lower inflation. It's quite clear that our monetary policy stance avoided that risk, and it eased the pass-through of lower oil prices into higher consumption and in due time higher investment. There is also another channel of course, which is the difference in monetary policy cycles between different jurisdictions, which had implications on the exchange rate. So these are the main drivers that one can see.

There are also other long-term drivers less evident now. One of which is certainly the condition of the capital stock in the euro area where many, many years of low investment both private and public would suggest that the years ahead should see a firming up of investments. There is another factor which would suggest that the pressure to de-lever should gradually ease if it's not eased already. And finally, of course, there are going to be less headwinds coming from fiscal policy consolidation than what was in place a year ago and this because of the progress that many governments have already achieved on that front.

So, as I said, the current recovery is basically the outcome of two competing factors -- oil prices, actually not competing they are complementing factors -- oil prices and our monetary policy stance. But there is one condition which makes a big difference that was not in place in 2012 when we first started creating conditions for the return of confidence in the financial markets; namely the banking system. The health check that all banks had to go through last year nowadays ensures that more accommodative monetary policy is being translated into better credit conditions, which is not something we've seen before.

You remember in 2012 many of you were asking me this question. Were we happy after July/August 2012 about the changes in financial markets, the euro the return of confidence in the euro, the dramatic decline in sovereign spreads? And all this however had a very hard time in being translated into better credit conditions and being translated into better credit standards for firms and households. Now the situation seems to be different. So I think one very important reason often neglected is the better health of the banking system.

And finally let me restate one thing. That this recovery is conditional upon the full implementation of our monetary policy stance, so let's never forget that. Of course, there are risks and I've dwelt on that but if you have any question I'll be glad to take up.

Question: A follow up this question of risks, we read here in the introductory statement that we are, while they are remaining on the downside they are more balanced. And in the minutes of the last meeting in Cyprus we read, if I understood it well, that there were a great uncertainty about the recovery in particular after 2016. It expressed this great uncertainty. So was it discussed today this level of uncertainty, or did it vanish and the ECB has a more optimistic stance?

The second one, since we understand that the level of the QE as a marathon has a long distance to go from now 60 billion purchases each month until September or as long as needed. But my question is do you exclude, or is there a point where the design maybe of the programme could be arranged in another way, a different way without changing the size effect? There are voices, some for instance calling for the ECB should buy substantially more EIB bonds so to help this bank to finance European projects if there are any one. So, about the mix within the programme is it something that could be discussed at a certain point?

And maybe allow me a little add-on question, but due to this intervention of the activist at the beginning of the press conference I observed that you remained very calm. How do you manage this?

Draghi: Let me answer the two questions. The answer to the third question I think you give it to yourself I guess. Now to the first point, if I correctly remember our discussion it was not so much about certainty or uncertainty of the recovery after 2016, but it was about the cyclical nature of the recovery as it is today. That's quite important to remember. Monetary policy as such cannot have a long-lasting effect whereby potential output growth increases. That's why the combination of monetary policy and structural reforms is so important, because what gives the economy the resilience to carry on recovering through time are structural reforms. So I think the discussion was not so much about, certainly oil certainly, but about what the conditions need to be in place after say 2016 maybe in 2017 that would guarantee that the present cyclical recovery becomes a potential output growth recovery.

The second question, some of your colleagues asked me the same question before. One thing that I hear people say is that our programme has been so effective. By the way there are three moments to measure the effectiveness of our programme. One was the expectations -- this thing started being expected way back last year in August --.the announcement, and the implementation. Each one of these three stages produced positive effects on the markets and in due time to the economy.

One of the considerations that I heard being made quite, I would say, complimentary towards the ECB was that the design of the programme and the determination with which it was applied, implemented, produced some extra positive effect. Why do you want me to change this programme now or say that it's going to be changed? So it's another way to say it's premature.

Question: I have a question about the investigation of the European Commission, about the deferred tax credit that could be illegal state aid. Do you think that this issue has the potential to provoke another banking crisis in some southern European country like Spain, like Greece, like Italy or Ireland?

Draghi: I know too little other than what you said really about this that you called the investigation, so I don't know enough to say what's going to be the consequence. Let me step back. First of all we certainly need to achieve a situation where the definitions of capital are going to be harmonized. That's one of the important aspects of having a common supervision, one supervisor.

It's also certainly important and desirable that we have a level playing field in the banking sector. But that actually holds true for all sectors of the economy. But I can't go beyond these points. By the way I've raised them myself in various hearings in Parliament about the desirability of these changes. But I can't go beyond this to say what is going to happen exactly, what are going to be the measures taken or agreed by the various parties in this dialogue. But there is one thing one reassuring thing that I assume that all these people who are actually part and parcel of these big decisions are responsible people, so I take for granted that they will not cause a banking crisis.

Question: Our question, and when I'm saying our I'm talking on behalf of Europe's youth, we would like to ask you: although general economic prospects are slightly improving, what is the employment outlook for Europe's youth today, and more specifically when we enter the workforce in a couple of years?

Draghi: Well it's probably the most difficult question I got today. What I can say is that the present situation of the labour market is something that should be overcome, should have been overcome many years ago. When I hear that the level of interest rates could be an incentive or a disincentive for countries governments to change their labour markets, I ask myself, shouldn’t the unemployment level be an incentive to change the labour market, especially since these levels are not the output, or not only the output of the financial crisis. They've been high, very high for many years before the financial crisis.

So, on top of this in the early years 2000's several countries had passed labour legislation. With a view to increasing flexibility in the labour market, they passed legislation where the labour conditions of the ones who were already employed wouldn’t change at all, but the new entrants would have very flexible terms of employment. So the outcome of this was a disproportionate fall of flexibility onto the young sector of the working population.

This was, as you can imagine, especially unfortunate for a variety of reasons. One of which was that as soon as the financial crisis struck the first to lose their jobs were the young people, were the youth. And that's why we still have such high levels of youth unemployment. So that has to change. We have to eliminate this sort of dual labour market condition. And we have to make sure the flexibility as its needed falls proportionately on all segments of the labour market.

So first restore the conditions whereby people hire, entrepreneurs, companies hire people easily. Reduce the amount of time, if someone loses a job, reduce the amount of time he or she is unemployed. Change the educational skills, improve the educational skills because very much so today we see that more and more employment is dictated by technological skills and conditions. Education today is a most important factor for finding a job. So from this viewpoint you are a privileged person, you and your classmates of course. And so I think that's what's needed. And especially now, that we've seemed to enter into a period of time where economic conditions are improving.