bonds – will you continue to reinvest them? the fed has already started to shrink its balance sheet. we are reinvesting them and have so far given no indication of wanting to stop. all will depend on how the economic climate develops. in germany there ’ s a slight possibility of a “ grand ” coalition being formed, which could herald a franco - german commitment to reforming the euro area. what do you make of that? there are many ideas around and it ’ s the task of governments to decide. technically, the two most important things, i think, are the completion of the banking union with the deposit insurance scheme, and the creation of an ad hoc fund with a stabilising role, if need be, to help manage growth. i have not heard any convincing arguments in favour of transforming the european stability mechanism ( esm ) into a european monetary fund. 2 / 5 bis central bankers'speeches would you keep it as it is? yes. it has its tasks ; it performs them well. the european commission has its role as guardian of the treaties and it monitors the countries ’ adjustment programmes. and one of the major things in recent years has been the huge adjustments in the countries which ended up under most pressure during the crisis. all these countries are now growing. you mean the so - called “ peripherals ” which have asked for assistance in exchange for adjustments? exactly, these countries, except for spain, which is recovering, have deficits below 3 % and have primary and current account surpluses. the account and economic adjustments have been extremely significant, and have been the result of improvement and reform programmes. the imf and the ecb agree that the current account surplus of the countries that have followed an adjustment programme is structural and not the result of reduced import quotas. so if there have been improvements, why change the role of the esm? so you are against the idea that the esm might become a budgetary control authority, as some have suggested? many ideas are being discussed ; the point i am making is that the european commission had responsibility for the adjustments in these countries, and it worked. so it was right to give those countries flexibility on their budgets to create room to undertake reforms? the point is that everyone is now full of praise for the efforts undertaken in those countries that are or were subject to an adjustment programme. that is what counts. so i don ’ t see any reason to adjust the institutional framework and create a new body,

thereby reducing the role of the commission. let ’ s talk about the most significant election happening this year, the one in italy. some parties are threatening to hold a referendum on the euro, to reverse the fornero reform or the jobs act, proposing measures which, by our calculations, would cost €200 billion … it ’ s not for me to comment on electoral programmes. what i observe is that the markets are very calm and don ’ t seem to believe that the risks you mention will materialise. i think the markets expect good sense to prevail in the end. more generally, if i look at countries like my own – portugal – or greece, with very high levels of debt, i believe that it is important to continue along the reform path. non - performing loans are another distinctive italian feature. we are expecting an announcement from the ecb ’ s banking supervisors on the stocks of these loans. do you anticipate risks for the market? on the subject of non - performing loans ( npls ), it has been explained many times that the ecb ’ s banking supervisors aim to ensure that the banks reduce or evaluate their non - performing loans appropriately, treating each case individually. it has never been our intention to introduce rigid new rules that are applicable for all in exactly the same way. this has been made clear, and in that sense i do not anticipate risks. yes, but if there is a time limit by which npls are reduced to zero – the famous seven years – that is a restriction. we will see how the banking supervisors decide to approach new npls and existing stocks. the discussion is still ongoing. one way or another, npls have to be reduced sooner or later. this is 3 / 5 bis central bankers'speeches first and foremost in the interests of the banks. it must be said, though, that the italian banks have reduced their levels significantly. do you see a risk of bubbles forming, for example in the german property market? there is no risk of bubbles in general, not in any market in the euro area. in the housing market, average prices are in line with fundamentals, which can be estimated using various methods. in europe, the same is true of the stock markets and the corporate bond market. the only market experiencing pressure is the commercial property market, but this does not imply systemic risks, as the residential property market would. there are hot spots concentrated in certain cities, of course, but macropr