mario draghi : building stability and sustained prosperity in europe speech by mr mario draghi, president of the european central bank, at the event entitled “ the future of europe in the global economy ”, hosted by the city of london corporation, london, 23 may 2013. * * * ladies and gentlemen, introduction let me begin by thanking you, lord mayor, for this kind invitation. i have always been deeply impressed by the sense of commitment that motivates distinguished city of london professionals such as yourself to take on the demanding role of your office. no doubt this sense of responsibility to the community has been instrumental in delivering the longevity and stability of the city of london corporation. this institution has played an important role in developing the square mile into the premier financial centre of the world. i cannot say which of the two sets of arguments is stronger, the economic or the political ones, but what i can say is that europe needs a more european uk as much as the uk needs a more british europe. to limit myself to matters that are close to my own professional capacity, let me note a few reminders of the depth of the interconnection : more than twice as many euros are traded in the uk ’ s foreign exchange market as in all the countries of the euro area combined and more than in the us. all major euro area banks have important branches in the city of london – and uk banks are leading players in financial markets of the euro area. around 40 % of the deposits placed with euro area banks from outside the euro area come from the uk. at the same time, an equally large share, i. e. 40 %, of all loans granted by euro area banks to non - euro area residents goes to uk borrowers. in fact, 40 % seems to be a key figure when looking at the uk ’ s linkages with the euro area : it is also approximately the share of the euro in all the foreign currency - denominated loans as well as deposits in the uk. finally, the euro area is the uk ’ s largest export market. it may not come as a surprise to you by now that no less than 40 % of all the goods and services exported by uk businesses are delivered to euro area countries. in 2012 this amounted to 240 billion euros, or just short of 200 billion pounds. with such deep interconnections, the uk and the euro area share a common interest : stability in the functioning of our economic system and particularly of our financial markets

staff compared to earlier projections mainly reflects the carry - over effect of weaker economic developments in 2004 rather than a downward revision of the expected pick - up of activity this year. there are some signs of an upturn in investment. as far as consumption is concerned, we expect that it will increase in line with real disposable income, which is projected to rise by about 1. 4 % in 2005. despite the increase in oil prices? oil prices are assumed to decrease gradually in the future as implied by futures markets. we are making no assumptions about other factors, such as an improvement in confidence, that could positively influence consumer behaviour. of course, if oil prices turn out to be higher than currently envisaged, they would dampen disposable income and consumption growth. what constitutes a natural interest rate for the ecb? the concept of a natural interest rate refers to an equilibrium real interest rate that reflects productivity and population growth. although most recent analyses seem to indicate that in the euro area it lies within a corridor of 2 % to 3 %, i would not be surprised if the lower bound of the estimated range is revised downwards as a result of the lower growth in productivity in the euro area during the past ten years. owing to the high level of uncertainty surrounding the estimates of the natural interest rate, great caution is called for when using them. the natural interest rate does not constitute an intermediate objective of the ecb ’ s monetary policy. competitiveness is improving in germany, including as a result of wage cuts. is this a “ recipe ” for other countries, like italy? germany has indeed succeeded in significantly improving its international competitiveness. without giving advice to individual countries, i must stress that it is essential to improve competitiveness to effectively compete in the global economy. italy ’ s competitiveness has declined during the past five years. it is therefore important to reverse this developing trend. how? for example, by increasing productivity growth and enhancing market flexibility. the wall street journal views italy as a “ fortress ” because of its restrictive attitude towards imports. do you support this policy, or is it better to be more competitive? past experience has shown that protectionism is not effective and can never be an appropriate response in the long term. it may even be damaging in the short term, if it leads other countries to introduce protectionist measures as well. besides, such measures are not in accordance with the european union ’ s fundamental principle of an open and competitive economy. competition is