peter praet : interview in la stampa interview with mr peter praet, member of the executive board of the european central bank, in la stampa, published on 22 december 2013. * * * draghi said recently that for the aqr the sovereign bonds will be treated as neutral, but that they will be considered as a risky asset for the stress test. what could it mean for italian banks? “ i can ’ t comment on this, as even the parameter have not been decided, yet and the stress test will be a joint exercise with the european banking authority ( eba ). what i can say is that, in general, banks have to manage their risks. the stress test by definition stresses the entire portfolio of the banks, thus including sovereign debt ”. don ’ t you think that the omt should also change your perspective, when you judge government bonds detained by banks? “ i would not link the two things. the omt has obviously had a consequence on the pricing of sovereign bonds, to the extent that it has removed from the spread that certain governments have to pay the compensation for the probability that a “ catastrophic risk ” scenario may materialise : the probability that they may leave the euro area. stress tests are never made for dealing with “ end - of - the world ” scenarios, but with plausible events, as adverse as they can be ”. the ecb mentioned the possibility of a conditioned ltro, “ british style ”, a “ funding for lending ” ltro, but what are you exactly thinking of? “ it is clear that when a central bank provides liquidity to the banking sector, it expects the banking sector to transmit the liquidity stimulus, in volume and in prices, to the economy. but on the other hand you cannot really force the banks to lend to the real economy when there is a problem on the demand side, when the perceived risk that banks attach to a loan is simply too high. you also don ’ t want that the liquidity injections lead the banks to take excessive risks elsewhere. analysts often mention sovereigns, but i am not thinking only about that. i think, as also draghi said, that putting “ conditions ” on ltro is complicated for all these reasons. for me the essential is to analyse if and how risks are properly priced and managed by banks ”. how ’ s the situation in the credit market? “ on lending to the real economy, what in particular needs to be

taxes or cut expenditures for example, and on what taxes you increase and what expenditures you cut. in italy you have had so far a greater focus on taxes than on expenditures. one should also try to avoid penalising labour and enterprises. but taxes on labour can only be reduced if spending is curtailed and put under a very tight control. now italy needs to be attentive to and cut expenditures : from that point of view, it seems to me that the appointment of carlo cottarelli is good news, it gives the right signal ”. is italy out of the recession? “ yes, it seems that also italy is getting out of the recession. i think it is very important, it shows that efforts are paying off in the end, and that there is hope. in italy the barometer of business confidence is increasing, there is a very important turnaround in confidence indicators. societies are a little bit like human beings ; you have waves of optimism and pessimism, and confidence is very important for firms to return to investment. the turning point is still very fragile, we are only at the beginning of this. that ’ s why we always say that there are downside risks, especially if structural reforms are stopped. but we see positive momentum building up. many business firms say : we see the situation improving, reforms are being carried out, but it ’ s still not sufficient to start really investing. they are still in a waiting mood ”. italy ’ s coming out of a crisis that destroyed almost 25 % of its industrial production, worse than in many countries of the eurozone. “ in italy there has been a strong contraction of productive investments, which is restraining growth potential and income creation. just to give you an idea, investment in the euro area has fallen by 20 % since the beginning of the crisis, while in italy by almost 30 % since the beginning of 2008. we believe that investment will start to recover in 2014. in that recovery phase, the ecb will be very attentive, and if there will be credit supply constraints holding back the recovery momentum, we will be ready to act. contrary to what happens in a recession, where the demand for credit normally shrinks, in a recovery phase credit demand will pick up ; and if credit supply will not follow, that could be a problem for the recovery. we will remain attentive that credit supply constrains will not hinder the investment recovery ”. anti - euro parties are rising. are