sector, which is not in good health. so unless we restore the banking sector ’ s health, monetary policy action is going to take time. q we ’ ve had a partial recapitalization of banks and some say there ’ s still not enough. we are moving towards the aggregator bank in the us or a good bank / bad bank where the toxic assets … italy has never really been infected by toxic assets. that probably didn ’ t … that ’ s a blessing now. a i mean, let me say something about the banking sector in general. market place people, public opinion have lost confidence in the banks ’ balance sheets. so the prerequisite for any action should be that we have a very significant transparency operation there going on. i think that several of the ideas that have been designed in the last year, like the tarp, the very same bad bank, the idea of segregating toxic assets within banks ’ balance sheets are all good ideas that could somehow produce the conditions for doing this transparency operation. but unless that is done, when i say transparency, i mean full recognition of the size of what is toxic ; but let me finish, unless that is done no significant private flows will go into the banking industry. q by saying that you clearly believe that we have not had full transparency yet of the level of toxic assets still outstanding. a well, let me tell you, let me give you an example. as late as the fall of 2008 major banks – and i will not name the country where this was happening – were having the same toxic assets posted at figures ranging between 50 and 90 cents per dollar, so that is a good example of lack of transparency. q i asked governor draghi whether he expected ever in his career to have to deal with a crisis like this. he told me, “ frankly no. ”

on a small set of elementary series, even if they are well known and widely used, invariably produce much poorer results in terms of smoothness and reliability than those obtained by carefully constructing the “ common factors ” as is done with € - coin ( see figure 4 ). figure 4 : “ cherry picking ” the second advantage of using many series in a formal way to construct € - coin is the possibility of assessing in continuous time the impact of the news contained in any of these series on the indicator. this can best be seen by referring to a real episode, such as, for example, the recent turmoil in monetary and financial markets and the surge in uncertainty it has produced. since most forecasts are typically derived from quarterly macro - econometric models, they are still necessarily based on information gathered to a very large extent ahead of the recent financial crisis. recent news are typically incorporated in a judgmental way and can usually be reflected in the forecast only as “ downside risks ”, and even then only rarely with probabilities clearly spelled - out, for instance with the help of a fan - chart. with the information at hand, almost all forecasters have suggested in the last few weeks that the short - term economic outlook for the euro area remains broadly in line with the picture we had before the summer, i. e. the cyclical expansion will continue in the second half of 2007 at a pace only slightly lower than what was expected in the spring. however, an issue worth investigating could be whether the initial conditions underlying these projections have changed or not, perhaps reflecting effects from the recent financial developments. what information does € - coin contain in this respect? first of all it confirms the overall positive outlook pointing to an underlying growth rate still between 2. 5 and 3 per cent for the euro area as a whole. the modest increase in june and july, that interrupted a weakening trend that started in the first half of the year, was followed in august by a return to a lower growth rate. however, the underlying growth is still higher than what was observed until the first quarter of 2006. to assess the impact of the august news on the state of the euro - area economy, we compared the estimate of € - coin obtained at the end of august with an alternative estimate obtained assuming that we had no august data concerning survey expectations and financial markets, thus replacing the actual data with their forecasts, as it is the case for those components of € - coin that are not yet available when the