mario draghi : verbatim of the remarks at the global investment conference speech by mr mario draghi, president of the european central bank, at the global investment conference, london, 26 july 2012. * * * ( … ) i asked myself what sort of message i want to give to you ; i wouldn ’ t use the word “ sell ”, but actually i think the best thing i could do, is to give you a candid assessment of how we view the euro situation from frankfurt. and the first thing that came to mind was something that people said many years ago and then stopped saying it : the euro is like a bumblebee. this is a mystery of nature because it shouldn ’ t fly but instead it does. so the euro was a bumblebee that flew very well for several years. and now – and i think people ask “ how come? ” – probably there was something in the atmosphere, in the air, that made the bumblebee fly. now something must have changed in the air, and we know what after the financial crisis. the bumblebee would have to graduate to a real bee. and that ’ s what it ’ s doing. the first message i would like to send, is that the euro is much, much stronger, the euro area is much, much stronger than people acknowledge today. not only if you look over the last 10 years but also if you look at it now, you see that as far as inflation, employment, productivity, the euro area has done either like or better than us or japan. then the comparison becomes even more dramatic when we come to deficit and debt. the euro area has much lower deficit, much lower debt than these two countries. and also not less important, it has a balanced current account, no deficits, but it also has a degree of social cohesion that you wouldn ’ t find either in the other two countries. that is a very important ingredient for undertaking all the structural reforms that will actually graduate the bumblebee into a real bee. the second point, the second message i would like to send today, is that progress has been extraordinary in the last six months. if you compare today the euro area member states with six months ago, you will see that the world is entirely different today, and for the better. and this progress has taken different shapes. at national level, because of course, while i was saying, while i was glorifying the merits of the

crisis of the euro, very often non - euro area member states or leaders, underestimate the amount of political capital that is being invested in the euro. and so we view this, and i do not think we are unbiased observers, we think the euro is irreversible. and it ’ s not an empty word now, because i preceded saying exactly what actions have been made, are being made to make it irreversible. but there is another message i want to tell you. within our mandate, the ecb is ready to do whatever it takes to preserve the euro. and believe me, it will be enough. there are some short - term challenges, to say the least. the short - term challenges in our view relate mostly to the financial fragmentation that has taken place in the euro area. investors retreated within their national boundaries. the interbank market is not functioning. it is only functioning very little within each country by the way, but it is certainly not functioning across countries. and i think the key strategy point here is that if we want to get out of this crisis, we have to repair this financial fragmentation. there are at least two dimensions to this. the interbank market is not functioning, because for any bank in the world the current liquidity regulations make – to lend to other banks or borrow from other banks – a money losing proposition. so the first reason is that regulation has to be recalibrated completely. the second point is in a sense a collective action problem : because national supervisors, looking at the crisis, have asked their banks, the banks under their supervision, to withdraw their activities within national boundaries. and they ring fenced liquidity positions so liquidity can ’ t flow, even across the same holding group because the financial sector supervisors are saying “ no ”. so even though each one of them may be right, collectively they have been wrong. and this situation will have to be overcome of course. and then there is a risk aversion factor. risk aversion has to do with counterparty risk. now to the extent that i think my counterparty is going to default, i am not going to lend to this counterparty. but it can be because it is short of funding. and i think we took care of that with the two big ltros where we injected half a trillion of net liquidity into the euro area banks. we took care of that. then you have the counterparty recess related