mario draghi : economic growth outlook, regulatory measures and the situation of italian banks speech by mr mario draghi, governor of the bank of italy and chairman of the financial stability board, at the 17th associazione italiana analisti finanziari – associazione italiana operatori mercati dei capitali ( the financial market association of italy ) ( aiaf - assiom forex ) congress, verona, 26 february 2011. * * * the economy the world economic recovery is continuing, albeit amidst many uncertainties. global output grew by 5 per cent on average in 2010 ; the previous year it had fallen by almost one percentage point. it is commonly believed that the expansion will continue at almost the same pace as last year. in the united states, gdp growth accelerated to almost 3 per cent at the end of 2010 ; the increase in consumption became more robust. growth at similar rates is expected for the current year. for the emerging economies, the growth estimate is on the order of an average of 7 per cent this year and next. in the euro area the german economy is providing the strongest impetus for growth, thanks to sharp increases in exports and investment in machinery and equipment. in italy growth is running at around 1 per cent. the expansion of output is concentrated at exporters, particularly large firms, with outlets in the emerging economies. domestic demand remains weak, especially consumption, which is affected more severely than in other euroarea economies by uncertain employment prospects and the protracted stagnation of households ’ real incomes. the improvement in the world macroeconomic situation and the overcoming of the financial disorder engendered by the crisis are nevertheless accompanied by old and new weaknesses. sharply divergent growth rates can easily accentuate the volatility of exchange rates and interest rates, jeopardizing the recovery. the interconnections between economies make the system vulnerable even to local shocks. the human dimension and the still uncertain outcome of the popular uprising in libya are of concern to the international community. the immediate impact of potential problems for energy supplies from northern africa may be mitigated by the abundant unused capacity of the other producer countries, but the dramatic events we are witnessing may undermine investment in the oil industry in the area and raise energy prices, with repercussions for world growth. for the italian economy, other things being equal, a 20 per cent rise in oil prices would shave half a percentage point off growth over three years. economic policies economic policies have less

. independence is not a new concept to the ecb. neither is accountability. we are proud of our independence, and in the context of supervision, the ecb needs to be safeguarded from external interests and national bias. with the activation of article 127 / 6, the provisions of the treaty are extended to the new supervisory task. these include independence in the preparation of supervisory assessments. in addition, the ecb as supervisor will enjoy operational independence, as foreseen by the core principles of the basel committee on banking supervision with which it will be compliant. it is essential that independence extends to all members of the supervisory board. such independence in the assessment is crucial for the credibility of the supervisory system. at the same time, it is equally crucial that these strong supervisory powers should be matched with very strong arrangements for accountability. let me assure you that we are eager to comply with the highest standards of democratic accountability at all levels, that is vis - a - vis both european institutions and national institutions. complete range of supervisory instruments the third principle is that the single supervisor should possess a complete set of supervisory instruments. all banks established in participating member states would in principle fall within the remit of the single supervisor. this is important to ensure a level playing field. it will also prevent fragmentation in the financial system, which is precisely what we are aiming to repair. one lesson of the financial crisis is that not only large cross - border banking conglomerates have the capacity to destabilise the financial system. due to interlinkages and mechanisms of contagion, even smaller institutions may turn out to be systemically important. such banks have a strong presence in europe : in almost half of the euro area countries, more than 60 % of the total bank assets are held by smaller banks. taking the euro area as a whole, approximately 30 % of the total bank assets are held by smaller banks1. these are significant amounts. to preserve financial stability, the supervisory board would be able to assert control over all banks in participating countries. let me say something more on how such a system could operate. the european supervisor will work as a decentralised system with the supervisory board at the centre. the supervisory board will itself be predominantly composed of top representatives of the national supervisory authorities ; hence the working method and decision - making will be collective, based on a collegial approach and will directly benefit from the skills and experience of the national supervisors. they will be prime actors in the framework, not passive