mario draghi : interview with the financial times interview with mr mario draghi, president of the european central bank, in the financial times, conducted by messrs lionel barber and ralph atkins on 14 december 2011 in frankfurt, and published on 19 december 2011. * * * financial times : we are now more than four years into the financial crisis. what lessons would you draw so far? what has gone right and what has gone wrong? mario draghi : we have to distinguish two stages. first was the financial crisis, with its repercussions for the real economy. i think we learnt the lessons that we need a more resilient financial system, a system where we would have less debt and more capital. there has been substantial progress in designing new regulatory policies and some progress in implementing this new design. the second stage of the crisis is really a combination of, i would say, a challenging political phase, where euro area leaders are reshaping what i called the fiscal “ compact, ” and a situation where banks and countries, face serious funding constraints. these challenging funding conditions are now producing a credit tightening and have certainly increased the downside risks for the euro area economy. action is proceeding on two fronts. at last week ’ s european union summit you saw a first step towards fiscal rules that are not only more binding, but actually are of a different nature. they would be binding ex ante, which is an entirely new quality, and written into the primary legislations of the member states. the second line of action is a set of meaningful, significant decisions taken by the ecb last week. we cut the main interest rate by 25 basis points. we announced two long - term refinancing operations, which for the first time will last three years. we halved the minimum reserve ratio from 2 per cent to 1 per cent. we broadened collateral eligibility rules. finally, the ecb governing council agreed that the ecb would act as an agent for the european financial stability facility ( efsf ). will the three - year refinancing operations give banks an incentive to buy “ periphery ” eurozone bonds? not necessarily. of course banks also have capital difficulties, and these measures don ’ t necessarily help them on that side. the objective is to ease the funding pressures that banks are experiencing. they will then decide what the best use of these funds is. one aspiration is to have them financing the real economy, especially small and medium sized enterprises

ask themselves whether the resources for the firewall will be adequate. in the meantime, the ecb acting as an agent will make the efsf operational. important was also the commitment to clearly restrict the psi to imf practices, which should reassure the investors. when do you think the efsf will be operational? our aim is to be ready to provide agency functions in january next year. but can we assume that the idea floated in october of leveraging the efsf is not actually going to happen? and that bringing in other sovereign wealth funds, chinese, all this was overpriced. no, i think it is premature and probably wrong to proclaim the efsf dead. furthermore i think that if one can show its usefulness in its present size, the argument for its enlargement would be much stronger. what do you say to those who say the solution is to have a very big fire wall and ultimately put the ecb behind it, because that is the only thing which will tame the markets? people have to accept that we have to and always will act in accordance with our mandate and within our legal foundations. bis central bankers ’ speeches but if you look at the wording of the treaty, there is nothing that sets a limit on how many government bonds you buy …. we have to act within the treaty. in general, there must be a system where the citizens will go back to trusting each other and where governments are trusted on fiscal discipline and structural reforms. once the firewall is in place with the efsf, perhaps as soon as the beginning of next year, might you actually stop the smp ( securities market programme )? we have not discussed a precise scenario for the smp. as i often said, the smp is neither eternal nor infinite. let ’ s not also forget that the smp was initiated with the view to reactivating monetary policy transmission channels. so as long as we see that these channels are seriously impaired, then the smp is justified. arguably, the monetary transmission channels are more impaired than ever before, if you look at interest rates in greece or italy compared with germany? the cost of credit is bound to differ because it ’ s geared to some extent not on our short - term policy rate but on sovereign spreads. would the ecb consider putting a limit on yields or spreads, or would that violate the treaty in your view? sovereign spreads have mostly to do with the sovereigns and with the