jonathan: live from the economic forum in davos, this is bloomberg surveillance, alongside tom keene, i'm jonathan ferro. tom: are we on speaking terms? ok. jonathan: you are not excited? tom: i am excited. pretending we are still on speaking terms. jonathan: we get along. tom: we have mario draghi in this hour. the conversation coming up, including goldman sachs, david solomon and james gorman. this is the heart of american wall street. jonathan: night and day, the experience of wall street in the

u.s. and what you would call global wall street. the european situation increasingly difficult. ceo's of the world express something different. tom: standard chartered. key emerging-market bank. i talked to bill winters today. the set in davos from gorman and solomon, winters, trying to move up and repair. jonathan: coming up, catching up with james gorman of morgan stanley. erik schatzker later. also, goldman sachs'david solomon on bloomberg radio and bloomberg tv. as we count you down to an important position from president draghi, unchanged, we expect in frankfurt. the conference, fascinating. concern about the continent increasing.

bridgewater on europe. >> they are starting from a worse level in terms of the economy, lower inflation, close to deflation and negative interest rates. that will click first. what will they do? -- theireffects movement will be a leading indicator. they will struggle more with easing than u.s. and china. jensen speaking. davost step on the ice at davosa terrific after a terrific year for bridgewater. relative to mario draghi, comments and headlines across the bloomberg and on to the important conference. stephanie flanders joins us, senior executive editor for bloomberg economics. this is not just another meeting. there is importance to it.

economics, 1%al europe as a backdrop. bloomberg for economics, it is never completely humdrum. there is growing concern about slowdown in the eurozone. more evidence of that with the german and french pmi's this morning. they do not have new forecast until march. gdp for this quarter is shredded. how much can he say without stoking expectation? tom: yellen, bernanke, powell, they would never admit speaking to american wall street. does mario draghi be to the elite in davos? stephanie: he is not physically here. evidence asiving they have in past years at davos. we are going to a changing of the guard, which is concerning

the people. leadership in the european central bank, all going in the next 12 months, including the chief economist. when you are placing that difficult shift to normalization, which they may not have gotten started on by the time mario draghi leaves, it is difficult. him talking to markets, is important. jonathan: questions as to whether they should remove accommodation and even thinking about normalization -- how can he sit in frankfurt today and say the balance of risks are balanced when they are so clearly going downside? stephanie: he may avoid that phrase for that reason. he does not want to change guidance. that would be more significant. i don't think they are convinced this is a permanent slowdown, anymore than they were convinced in the summer when we had the second quarter slowdown. careful language. if you do that thought experiment.

rates at 4% now, would you touch them? yes. jonathan: the conversation has shifted, if you cannot do anything on rates, you are -42 basis points, and you have wound down qe, can you do anything? there is a hint of that. speaking to market participants, can they be disappointed? stephanie: that is coalescing. they have italy. italian banks are dependent on liquidity. they have to refinance in the summer. you need someone as skilled as mario draghi to manage policy. tom: i would normally bring this up on monday but we are approaching real yield. jonathan: from davos. tom: numbers this morning, you think you know it all, french two year yield, was negative. negative interest rate. we do not see that in america. it is pervasive.

what does that mean for bmp? for the rest of french finance? stephanie: this is why politics of rates are opposite. disconnect between donald trump and jay powell is all about whether to raise rates. at the institutions here in the eurozone, the financial ment is desperate to move away from negative rates. it is a hard argument to make. nominal gdp -- this is not a nominal environment. tom: we do that on bloomberg surveillance. jonathan: i am part of it. tom: are you? jonathan: i am. stephanie: we have had a lively debate between larry summers and various members about whether they work. judge that some

relationships did not maintain themselves in negative territory. the europeans would say, we cannot say it formed the eurozone economy but all it was going to do was buy some time and it did that against the alternative. they want to get away from that. they want more forward guidance. tom: this is critical. raging economic debate. it works on radio. there are no charts. on tv you would fall asleep. cut to the chase. carnegie mellon gave incredibly important papers about the courage to go deeper negative rates to clear markets. we all observe europe has never cleared the markets like america have the ability to do. there has not been negative enough, rates, that the professor advocated for? stephanie: what was more effective in european context was credit easing, which they

should have done earlier. making it available. banking finance is more fundamental. so much more fundamental to german economy than it is to the u.s. even more boring, capital markets union. tom: i love this. stephanie: the whole point is to have alternatives so you're not reliant on banks. tom: bloomberg radio and television, stephanie flanders puts us to sleep. jonathan: you make a good point. the problem with ecb is that banks were doing all the financing and banks were impaired. it could ease financial markets but it was not enough. couragee: the real would have been to have a countercyclical fiscal policy to be able -- the problem with the eurozone was they were more dependent on monetary policy because across eurozone, fiscal

policy was not where they would have wanted it. tom: the u.s. can take a victory lap over 10 years of clearing the market. we are still politically subpar gdp, other than the aberration of make america great again. what is your economic team in the u.s. say about the new level of growth of the u.s.? jp morgan, 2% at best? that is not acceptable. stephanie: when we talk about donald trump changing the conversation, he has changed our reference points. if you look over the last years, we would not have thought to present, for this stage in u.s. development, to have that as long-term growth rate, 2% is not so crazy. the fed is battling with this gap between the white house, normal growth rates and what they consider realistic when they look at demographics and where the labor market is.

we brought forward growth with superlow rates. tom: brought forward is the right phrase. jonathan: that is the debate in 2019. what is trend growth? journey from 4%. as you make that down from 3% gdp, people are worried you overshoot and go down and do not come back. stephanie: i don't think we are seeing that. this has been a debate on the sideline of davos. lininginess community is up to the donald trump criticism of the fed. if you are janet yellen or central bankers here, three years ago if i said, you will keep raising rates, we have 25% rise in stock market, inflation on track, unemployment rate lower, jobs, wages going up. they would consider that first stage normalization successful. donald trump is changed the argument. tom: solid gdp?

jonathan: data in america looks decent. the data we have, at least. tom: keep pmi's in europe. flanders,stephanie great to catch up. ecb decision later. we bring you that and the conference following that decision. we catch up with the prime minister of the netherlands. mark ritter, just around the corner. opening bell in new york city countdown. good morning, new york. cross assets. futures positive across the board on the s&p 500. switch. markets, 10 -- bond year treasury looking like this. yields south by two basis points. 72% on the tenure. from be beautiful davos, switzerland, this is bloomberg. ♪

>> this is bloomberg surveillance in new york. first word news. >> the french finance minister confirming carlos quit as chairman and ceo. >> just resigned last night. put atime to define and new order in place. what is the most important thing, is to prepare the future. >> he has been in a tokyo jail cell since november, accused of financial misconduct. he quit his positions at nissan and mitsubishi.

president trump will put off the state of the union until after the shutdown is over. that announcement coming hours after speaker pelosi blocked him from delivering the speech in a house chamber. pelosi canceled the speech because she did not want to hear the truth, he said. he jong-un is signaling anticipates sanctions relief. kim praised the president. he hopes to advance, step-by-step. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. >> let's get to the stocks moving ahead of the u.s. open. taylor riggs. tech winners and losers overnight.

winners. they are higher this morning after q3 net revenue beat estimates. $800 million. forecasting fourth-quarter sales topping highest analysts estimate. you are seeing increasing spending on 5g. lam came in short but they authorized a $5 billion share buyback. see good newsg to from semiconductor stocks after many underperformed 2018. finally getting demand certainty again. there are losers. let me hit them. networks are adding to the share buyback program. to $157 price target

and they are underway on shares. itrix missed the lowest estimates. they remain challenged by the slow transition to the subscription-based cloud offering. they have leadership changes. growth trailed. >> coming up from the world economic forum in davos, interview with the netherlands president. let's go back to davos from new york. jonathan: this is bloomberg surveillance, live from bloomberg tv and on bloomberg radio. day three of the world economic forum. another decent day. tom: mr. gorman and solomon of american wall street and more international economics. doing a hugely received oceans panel last night.

climate change and how it funn els to energy. long ago and far away. the cool people. the prize around campus. as i have told dr. juergen, three people read it at brown university. jonathan: think about how big that book is. >> i read it a few times. tom: we will move on to the quest, then to the now what for big oil and national and international energy policy? volume three. where are we? >> that is the conversation in davos. extreme weather, climate change topped the list of concerns. there is a recognition and realism that is new this year of just how far away we are despite

the progress in renewable energy, ev, how far away we are from taking global goals like the 2 degree target, how far we are from achieving it. tom: is exxon here? >> many big oil is here. tom: what is the future given what we see? yeah, climate change. do it. forget about it. are they listening to corporate leaders and officials? >> there is a lot of variance in the industry. there is recognition but we need to move much faster to clean energy transition. we will be using oil and gas for a long time. people are paying attention to geopolitical risk in venezuela or a trade war in china that could slow down growth and put pressure on prices. companies are looking on what it is like to transition over time and investing in the oil and gas climate initiative, doing things like go over the methane

emissions profile to move it in the right direction. jonathan: a number of years ago, you could make the argument that america needs to shift from fossil fuels because we were so dependent on fossil fuels from abroad. 10 years later, america is the biggest producer. is it harder to make the argument you need to move away from something you are the leader in producing? >> when i was in the obama white house, we doubled fuel economy standards. trump administration wants to roll that back. their rationale is, we import almost no oil and there is less national security reason to reduce domestic oil consumption. there is a huge reason to do it in terms of the environment and protecting consumers. we used to have the ability to build consensus across the aisle. that breaks down in a world where the u.s. is energy independent. tom: did you avoid geology in

school? >> brown does not require -- tom: so you ran into scientist at one point and said -- these guys are smart. how does davos and america deal with the president and a good part of america which has an a science outlook? they do not want to look at theoretical and applied constructs of modern climate science. >> there is a piece of this administration and a segment of american society and other countries as well that has a challenge accepting what is broad scientific consensus. tom: is that permanent? >> i think it will change. you see that across the aisle. yale just came out with a study showing rising public opinion that climate change is real and caused by human activity and we need to do something about it. tom: radio remote next week .

they would like us on an iceberg. anthony from jersey wants us on an iceberg. >> we are seeing impacts from climate change. 10, 20 years, current status quo, impacts will be unpleasant for people to deal with. the broad public will not accept that. there will be a tipping point where people say, we cannot keep functioning this way. jonathan: do you think there are members of the public that still need some form of education to draw a distinction between weather and climate? >> absolutely. it is cold here. we have cold spells. the climate is a system. what is important is the way that system is changing, average temperatures are rising, 4,5 hottest years on record. people need to understand that. tom: coming up in the next election, there are 47 presidential candidates. you worked within the democratic

party theology of barack obama. where is the liberal aesthetic moving on climate change? is it shifting? are we going to see the same debate in 2020? >> huge amount of momentum on the left. many in the democratic party came in with the takeover of the house pushing for stronger action on climate change. that is great. there is not full agreement on how you implement. whether we can achieve that with 100% renewable energy or need a broader set of solutions, advanced nuclear, price on carbon and a recognition there will be a role for oil and gas for years to come. tom: visit us in new york. it is far away. >> anytime. jonathan: it is much nicer. tom: it does not have the view of italy. i can see behind us, li --

luigi waving to us. jonathan: we will work this out later. renault says the chairman will handle the alliance. earlier, with the french finance minister. we will get you more on that later. coming up, an interview with james gorman and david solomon. all here on bloomberg tv and on bloomberg radio. market check? equities, bonds, fx. equities firmer by a quarter of 1% on the s&p 500. tom: sterling up three days in a row, nice lift over 1.30. with mr. draghi coming up, watch the weaker euro. jonathan: fx ahead of the decision. later we hear from mario draghi. the euro weaker after soft

pmi's. 1.1350. treasuries up. 72% on the u.s. 10 year. this is bloomberg. ♪ >> this is bloomberg surveillance in new york. we are expecting the ecb announcement and we will bring you details when we get them in 20 minutes. another stock moving ahead of the u.s. open. taylor: all about the airlines. american airlines not coming out with numbers yet. we got numbers from southwest and jetblue. southwest higher, earnings-per-share beat after corporate bookings arising. they are forecasting revenue for available seats, mile rising to 4.5% this quarter exceeding forecast from delta and united. so far, january, revenue is $15 million hurt by the government

shutdown. jetblue is higher after they had a beat, reaffirming 2020 earnings-per-share guidance. first quarter revenue per miles, down -2% to 1%. american airlines expecting to get those any moment. when they cross, i will bring them to you. the sub airline index off 16%. we need to see comments about the shutdown, any impact from oil prices as well. we will bring you those as we get them. lisa. lisa: coming up from davos, an interview with the economy minister. we will bring that to you, also the ecb decision. this is bloomberg. ♪

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jonathan: live from davos, switzerland on bloomberg tv, this is bloomberg surveillance on day three. coming up, james gorman of morgan stanley. later, catching up with david solomon. tom: davos history. president xi and trump. the swiss made a decision. thomas jordan, swiss national bank, unplanned. he was measured in his words. two thousand 15? different world. jonathan: central bank at the epicenter of every point of tension in the global economy. if anything goes wrong, go to the swiss franc.

the way he has defended it is by maintaining interest rate of negative around 75 basis points. tom: 20 years at one point. jonathan: aggressively negative in switzerland. the question is, whether they need it? you take the trip from zurich. the economy look strong. individuals are wealthy compared to many countries. does switzerland need negative interest rates? tom: it is the money flowing in. we talk about yield. look for real yield tomorrow on bloomberg. it is about flows. the bathtub. the stock of money and the flow of money in the conduit in happy valley is all moving to switzerland. jonathan: happy talk in happy valley. tom: we were looking at real estate. jonathan: maybe you are after that? tom: things are not cheap in switzerland. this bowtie is from madison

avenue in new york and it is a lot more money in zurich. jonathan: the currency is moving against you. tom: we would know that from eating every day at mcdonald's as we do at bloomberg. jonathan: countdown to ecb decision. governing council in frankfurt will deliver in 14 minutes. 45 minutes after, we get the news conference in frankfurt where we will catch up with the president, mario draghi, listening to that conference in full. 2/10 of 1%itive by on the s&p 500. bond markets, treasury yields 72 on thepoints, 2. u.s. 10 year. euro softer after weak pmi's. .uro-dollar, 1.13 tom: mario draghi coming up. i have been remiss.

tois one of my weaknesses look at the machine of europe, devolving down to the spanish economy. there is vibrancy there, within all the domestic cultures. as with, all across europe. the economy minister joins us. the stereotypes of spain in america. so much unfounded. give us an update on the cultural solidity of spain now. we see this riot, that riot, barcelona, this, half the places -- give us an update. >> thank you. a pleasure to be here. i don't know if the prejudices you, the i can tell spanish economy after a long crisis has been bouncing back, growing significantly in the last year. there is a stable society, strong social fabric and

political stability. tom: hot water at home. what is the distinction between spain and italy in recovery of the crisis? >> growth rate is not comparable. we have had high growth rate, maximum in 2015. our expectation 2019 is 2.2%, growing more than the large european economies, significantly more than the average eu. no comparison. fiscal policy is dimensional. we are committed to fiscal consolidation, reducing the deficit and debt. social stability is remarkable. open, liberal economy and society, welcoming. we're encouraging foreign investments. earlier in davos, the dutch prime minister made waves. he thinks italians have been let off slightly for their approach. tom: every day on bloomberg

surveillance. jonathan: do you think they are? >> i would be surprised the prime minister would say that. last monday we had the finance minister and the dutch finance minister asked the commission what their assessment was of the italian situation? the commissioner explained and there were no further questions. i am surprised. jonathan: others are as well. some people think italians might be right. maybe we need fiscal stimulus on the continent. you have done hard work in spain, fiscal consolidation, reforms and you are reaping the rewards. what is your message to the italian government over the next couple years to loosen the strings? >> the way forward, this is what our government is pushing for, is striking the right balance between fiscal discipline and social policy. we do not have to wait until the streets are full of people complaining to act and address imbalance and inequalities in society.

jonathan: let's talk about that. you have a high unemployment rate in spain. have a high unemployment rate in spain. what can you do? the growth has not taken a big bite out of it. >> we have moved down from 26%, which was high during the crisis, to around, we hope to close the year around 14%. that is significant reduction. it is still unacceptable. jonathan: that would sound to this audience abysmal. >> we have structural unemployment situation in spain and high cyclical valuation -- variation. we want to address that. we will announce in the coming weeks structural reforms to address dualities in the labor market in spain. i have to keep the secrets. tom: next. >> [laughter] jonathan: can your government get a budget through? how confident are you? >> quite confident. what we are trying to do with this budget proposal is

precisely this balance. we want to be ambitious. reduce the public deficit and debt. at the same time, focus on policies which have been neglected in the last year. social cohesion. to ourwant you to talk radio and television audience in america and europe, be iberia airlines now. madrid is one of the great jewels of the world. what do you need to do to move tourism forward to get more people in madrid, in spain? >> last year we had 82 million persons coming to spain, the record in europe. we are trying to move to more quality tourism. tom: how? >> we are trying to go beyond the sun and beach kind of terrorism. tom: how do you get people to

the prado? >> come to spain, come to madrid. prado'stractive and the outstanding. there are many interesting cities around that you can easily visit. tom: i don't care about mario draghi. i just want to go to madrid and get a private tour. do you need better hotels in madrid? >> what we have seen last year is that there has been a move from the beach tourism, going to the center of spain and visiting old cities. tom: in april and may with team surveillance? it would work. >> [laughter] will havethe minister paid for an all expenses paid trip. >> no. [laughter] jonathan: we would have to pay. >> of course. jonathan: great to catch up. coming up, the prime minister of

the netherlands. ecb decision, minutes away. equity markets set up in new york. this is bloomberg. ♪

lisa: this is bloomberg surveillance in new york. four minutes away from ecb decision. earnings from american airlines. taylor riggs joining. shares popping premarket. taylor: american airlines, four q beat, full-year adjusted earnings per share, big beat.

we heard from southwest and jetblue. good news. on the heels. southwest guidance for revenue available, beating guidance from delta and united. fuel prices, q4, looking to see how that helps margins. lisa: it will be interesting to see if they talk about tsa. news on norwegian air. after themping 14.5% airline group said it does not intend to bid for them and will sell states. definitely punishment for no reason today -- norwegian today. check that out. we are waiting for ecb announcement, 2.5 minutes time. this after a difficult manufacturing report for germany. this is the first time in a decade ecb is looking at a slowing eurozone economy and not planning tatts stimulus.

-- to add stimulus. taylor: complications for draghi. eurobonds rallying. 1%xx 600 higher 4/10 of partly because we are inspecting, during volatility event, you could have dovish mario draghi, not making a ton of changes. he needs to recognize the slowdown going on. slowdown in expectations in december. we need to get his comments on q1. fellacturing pmi deposit, to the lowest going back multiple years. there are challenges. lisa: existential question. balance sheet has expanded dramatically. easy money policy, yet you have not seen the economy accelerate meaningfully. it is slowing. what ammunition do they have left? will they hint guidance for the banks?

meanwhile, peripheral bonds popping with yields plunging lowest in six months. what is bad for germany is good for italy, considering the prolonged easy money policy. taylor: the composite manufacturing pmi's, it was also slowing growth in the three major economies. germany, france, italy. japan starting to see weakness. as that unfolds, what does that do to peripheral bonds? lisa: we were talking with the bloomberg intelligence editor, one of the most understated risks to markets is the slowdown in europe. we talk about china. really, it was europe that made the imf downgrade. we are getting announcements from the ecb. they left the main refinancing rate unchanged. no surprise. is new.this

they're going to keep rates unchanged through the summer of this year. not a huge change. leaving themselves open for autumn rate hike. they will keep rates unchanged as long as needed for inflation to pick up. reinvesting maturing debt for extended time. they stopped adding to the bond holdings. they will reinvest past the date of the first rate increase. the quantitative easing, the asset purchases still very much in place. not seeing massive moves. this is positive for bonds. easy money for longer. taking dovish tilt. policy on hold given the fact that ecb is planning to keep rates low for foreseeable future. taylor riggs, thank you. bloomberg surveillance in new york.

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jonathan: on bloomberg tv and radio, live from davos, switzerland at the world economic forum, this is bloomberg surveillance. good morning to new york and the world from switzerland. ecb leaving interest rates unchanged, guidance unchanged. and 45 minutes we hear from mario draghi, looking at assessment of economy. tom: german 10 year yield. not looking at two-year dynamics. longer duration. jonathan: it is not rising. tom: ebbed away. jonathan: price action ahead of the conference. german 10 year. 2 basis points. 20 basis points is the yield on the german ten-year. euro-dollar. euro weaker following soft

pmi's. no change. 3.ro-dollar at 1.135 i want to know whether the president thinks the risk is balanced. tom: we will get that in a minute. important for us a bloomberg. one of the few politicians at davos, but worldwide who has actual business experience. here we go, unilever as well. so much to talk about. john wants to go the distance from amsterdam to rome. we will cover this. coming.it is distance nowthe from netherlands to brexit. hall, henry the eighth, antwerp, the nexus of capitalism.

his capitalism in london at risk? mark: i don't believe so. it is not good. brexit is not good for europe or for the u.k. it will be a smaller economy. it will have less of an impact on world stage after brexit. i am negative. jonathan: we don't know what it looks like. mark: they leave the eu. on which terms? negotiated? no deal brexit? in any case, they will leave. that is not good. jonathan: city of london, from euro perspective, the city of london needs to flourish to provide the type of financing europe needs. does the eu need london? >> we need strong financial centers. hong kong, paris, amsterdam. jonathan: can amsterdam step up? >> we are doing it.

financial centers in europe reaping benefits from this negative situation over brexit. many companies in the u.k. with japanese and indian backgrounds coming to the netherlands. set up shop in amsterdam. lovely headline about capitalism not being debated in davos. capitalism the new of the netherlands. there are so many stereotypes of netherlands evolving from world 1960's --47 onto the what is the new capitalism of the new netherlands? mark: i do not see a new netherlands. we have always agreed people, starting a business, on their own money, hiring people, that is the best way to have a strong working democracy with a strong economy. the economy has to deliver for the people. for me, i have to make sure the

economy is doing well, that we have enough jobs and that there is enough security. jonathan: you have made waves in davos. the comments about the italians being let off the hook by the europeans. what are you angry about? mark: europe is facing challenges. we can make progress on climate change, digital, services, markets. there are problems. the divide, having to do with migration. the other is a north, south divide. it is a lack of trust in europe to the north and south. the commission has the task to force italy to do more, to bring state finances in order. there is basic view in eurozone that we have to make sure our own house is cleaned and working well and collectively we can make sure we become more competitive. the commission has not done so. they have not fulfilled that task, upholding the treaty. jonathan: some people listening

might say, why is it ok for the french to lift the budget deficit and not for the italians? mark: it is not ok for the french. theave to assess that for emmanuel macron assessment. we have not seen the numbers. deviation or not, from what they have promised to the commission and their colleagues in the eu. in italy, we know the situation. debt of gdptuation, over 130%, deficit of more than 2%. it is not good. changes, reforms, fiscal contraction, we are now growing at a fast pace, twice the pace of competing economies because we made those reforms. italy has to do the same. tom: we have tried to advocate this debate for years. pimco, harvard,

really trying to study the core of europe and the troubles and challenges in the south. are we going to revisit that in the next five years? the idea of a core of europe choosing to separate from the south? mark: i don't think so. eurozone is working. the netherlands, when the banking crisis directed in 2008, we would have run the risk, speculators would have killed us. given the size of banking sector to our currency, we are fortunate to have the euro. it has brought us positives. basic promise of the euro is collectively we aim for a higher level of competitiveness while making sure we deal with our own problems at home. you cannot export those problems to the collective. jonathan: eurozone has been lucky to have mario draghi. have you endorsed the nation that could head the european

central bank? what country at the top? mark: i have ideas but these transitions have to take behind the scenes. jonathan: some people are worried if it is someone from, say, germany, the decisions made with that north-south divide in mind. stricter monetary policy. mark: i don't know the passport of the new president. they need to be there for the collective, not to fill the gaps with politicians, mario draghi was forced to fill some of those gaps in 2012, he said i would never let the euro down and do whatever it takes, the london olympics in 2012, he has done a marvelous job. i would hope for his successor that the politicians will do what we need to do and do not leave it to the ecb president.

jonathan: when? mark: this year but i don't know clearly. jonathan: great to catch up. mark: good to see you. tom: 1022 miles from amsterdam to rome. jonathan: have you just done that? mark: [laughter] tom: analysis. 1022 miles. jonathan: i have to deal with this. mark: [laughter] jonathan: coming up, and interview with james gorman, coming up on bloomberg tv and on bloomberg radio. from davos, this is bloomberg. ♪

jonathan: from new york, from davos, day three of the world economic forum, this is bloomberg surveillance on bloomberg tv and radio, alongside tom keene, i'm jonathan ferro. great interviews coming up. ceo,an sachs chairman and david solomon, coming up in a couple hours. tom: international at davos. americans, the state of american wall street. that important interview yesterday with brian moynihan of bank of america. mr. solomon coming up. erik schatzker advances the conversation. i'm advancing it with none

other than james gorman, chairman and ceo of morgan sterling. -- stanley. >> great to be back with you. >> we talked in november. your macro view was confident. since then, expectations from imf and others for global growth ratcheted back. the mood in davos is cautious if not gloomy. james: the mood in davos is reflective of incoming sentiment, day one perspective. that was not surprisingly, given december with markets, was cautious. echo chamber. it is cautious. it is cautious. after three days, people get depressed. it is overdone. markets had a difficult december. there is political uncertainty now. the underlying economic growth. look at jobs numbers u.s.

80,000 two hold unemployment where it is. unemployment went up with 300,000 jobs. that means people came into the workforce who were not in it. the economy is slowing globally, slowing in u.s., china, largest economies. that does not mean we are in a crisis type mode people like to talk themselves into. >> you and so many others here one year ago were hopeful that by this point we would not be talking about brexit. we are. would you say, based on what has happened over the past few weeks, base case now has to be hard brexit? >> we hold a dinner here every year and i make predictions. three things we would not be talking about this year. brb. man, brexit.et i was dead wrong. i have no idea. how could anybody project?

the u.k. parliament cannot figure out the right answer. biaspect everyone has a against hard exit. they have all agreed that that would be bad. >> are you ready for that? james: yes. this sounds selfish. brexit is not that big a deal for us. we already have operations across europe. we will set up headquarters in frankfurt. we have organized. we have employees and infrastructure. we will manage whatever happens. i'm not worried about morgan stanley. i'm worried about the impact it would have on the u.k. of course, the rest of europe, particularly u.k. it is not good outcome. >> for no one. speaking of no one, no one is talking about fed hikes. it is now -- when will the fed ease? what on earth is the ecb going

to do? it is still stuck at zero. have we hit the peak in this tightening cycle? james: don't think so. talking of easing is premature. stan. they phenomenal investor. -- he was interviewed by you recently. insaid the fed should sneak interest rate increases when people are not watching. when the times are good, push harder, it gives you monetary flights ability when times are bad. the fed did not do that in 2016. it had the opportunity. '18, they pushed in four rate increases but it raised the ante on too much too late. the aggregate increases were not that high. the markets, some people are projecting a rate cut. i do not see that. i do not see three increases.

my personal projection is it will be or 2. currently, the u.s. economy is doing great. the fed has got this dual mandate of inflation and jobs. continued those, modest increases. >> what what you need to do to position the firm for a more stimulative environment? james: there is discussion around data dependency with the fed. will they be looking at economic data? or market data? consumer sentiment? as we get further and to the rate increase hike, the more the tilt should be, what is the market able to absorb? what impact on the quiddity? on investors? -- liquidity? that will change behavior and economic outcomes. >> there has been attention on

your fork you results, -- your fourth quarter results, your ceo said "unfavorable conditions resulted in losses as we supported clients." what does that mean? james: to clarify, and it is a good thing the fourth quarter is over. a $1.5 billion profit as a firm. million int $10 certain client positions. that is not material. honestly, the real story in q4 was with turmoil in december, we did not trade as we could in fixed income. we created liquidity. we took modest losses. if fixed income had been great, it might've generated another $200 million. $6.8 billion

revenue. >> i am not focusing in on for what you think i am. i might be focusing on it for the reasons you are. people obsess over the magnitude relative to peers. did you support clients more aggressively because you saw an opportunity to be there when they needed you most so you could pick up a larger percentage of that shrinking wallet share? >> if i had to write a flattering reason -- [laughter] i would have called you up. you just gave it to me. no. we did our job. i am sure everyone did their job. we had record revenues for the year. $40 billion. record pretext. record earnings. record investment banking revenues. equity is number one in the world. it was a phenomenal year with a bed december. -- bad december.

>> is there any reason to be concerned the major trading firms on wall street hit the same air pocket at the same time? james: it was the most difficult month in the last 120 months in trading. in terms of, the black swan? several degrees standard deviation away from normal? in the last 120 months, this was the worst. i would be surprised if anyone did well. given how relatively -- conservatively the banks are managing their balance sheets, they hold up pretty well. i am not that exercised about what happened. >> you are really that exercised about anything. james: i am exercised about exercise. >> how are things going? james: it is clearly not december.

was aquarter one year ago blockbuster. we are not in that environment. it is better. shutdown -- the which has come out of nowhere -- no one was talking about a government shutdown three months ago. that will affect gdp. quarter will definitely be stronger than q4 last year. the shutdown will start to affect economic activity, whether it affects banks in the short term remains to be seen. >> morgan stanley has built a fearsome equities business in rise ofanticipating the quants. some of them are in trouble. are you worried about the

sustainability about that strategy? james: not particularly. if you look at performance last year, down 5%. not that far off where the s&p was. if you want to look at a time where they were under stress, go back to august, 2007. >> the quake. james: that was stress. in the aggregate, i am not worried. the waychange in business is being done. amplifiesarkets and things going bad. there is amplification factor. >> machines are playing a role? james: no question. your introducing elements which is not the human element. not thether hand, it is equities business. equity has the best prime brokerage business in the world, with the best financing.

prime broker for hedge funds. >> i am well aware. speaking of what is happening in that world, there is a huge shift of assets from public markets the private. -- the private market. do you worry about the second order effects? james: i assume what you're about -- i think the canadians were talking about this the other day -- >> the ceo of the canada pension plan investment board, one of your clients, was talking about the impact, the illiquidity it takes in public market. james: i have not gone back and looked at the numbers. my guess is a lot of the pension funds were underweight, alternative investments. pension funds have benefit of duration risk profile different from many participants. >> they don't need money when the rest of us to. james: correct.

not everyone retires at the same time or dies at the same time. the question is, the relative percentage, whether it was the david saw aase, different duration risk for the portfolio. >> they have a reason to move to private. where does that leave everyone else? if all this money is moving into private assets, those people who need money, you and me in times of stress, will sell what they can, which is access in the private markets. do you think there will be steeper selloffs as a result? james: i don't think so. >> intellectual point. james: we were 2.5 trillion dollars, $2.3 trillion at the end of last year. ,he alternatives in that pool

less than 10%? there is still a massive public market pool of liquid assets out there. what the pension funds and endowments have done is changed profile, reflecting duration risk. i am assuming if they are well-managed, and they are, they are holding enough liquidity for eventual downturn. i have plenty of worries but that is not in the top few. >> you go into every new year with 10 goals. top of the list? effectiveness and efficiency of tech span. we spend $4 billion a year on technology. there is a massive new technology, whether machine learning, robotics, all the stuff people talk about at davos, cloud computing, data management, cyber, digital. that is a small percent of what we are spending. are we being as effective in how

we are applying for billion dollars? efficiency -- $4 billion? have we changed our infrastructure to reflect the change? getting in the weeds of the fastest growing expenditure and the biggest and most important behind our firm is number one. number two. i want to be clear. small deals in financial management. we did one last year for $200 million. nice fill in transaction to the platform. the other one is a secret i cannot tell you about. they are my goals. >> one last davos question. today, you were on a panel with a number of saudi's. that leaves people asking the question -- and it is legitimate -- is it time to let them out of the penalty box? james: i don't think that is the right way to ask the question.

i don't think saudi arabia is in the penalty box. i think what happened with the khashoggi in the saudi consulate in turkey was utterly unacceptable. the world, including the saudi's, want to understand exactly what happened. peoplehat is resolved, will keep asking questions. in the meantime, 32 million people in the country. they deserve a shot. the country is transforming itself that social level, the gender bias in place forever is starting to be brought back to what we would consider, normal, like letting women drive cars for example. attend sporting events. the economy is diversifying away from oil. they got included in the ftse. these are positive. let's not hurt all the people

while the investigation goes on but let's get the investigation done. >> well put. james: appreciate it. >> james gorman. back to you. jonathan: thank you. great work as always. catching up with david solomon later right here on bloomberg tv and radio. we welcome listeners and our audience across platforms right here on bloomberg surveillance on day three of the world economic forum in davos. tom: let's hear it for mr. gorman. bang up year. ugly december. transatlantic banking, devolving to the barclays chief executive officer. here he is on the state of his banking. >> i think the banks are in good shape. around the world, level of capitalization a multiple of what it was. moreapital to risk assets

than 3.5 times what it was in 2007. calculation of risk on balance sheet is three times more stringent than it was in 2007. the level of liquidity required to hold -- the banking system -- more than likely there will be another financial crisis -- it will probably occur somewhere else in the financial ecosystem. this time, there is a chance the banks will be the buffer as opposed to the cause. francine: where does the next crisis come from? what region? >> what i would say is, there is an extremely high amount of debt accrued and sovereign balance sheets on the back of essentially zero risk free interest rates. hasbanking sector strengthened capacity to take on debt on balance sheets, that debt has gone to instruments like collateral loan

obligations, clo's, they have gone into more investment products. you remember the challenges created? the question is -- is there a liquidity shock around credit overall? whether that will pull credit away from capital markets and put issuers under pressure? we saw that in december sort of. zero high-yield debt issued in the world in december and there were a lot of companies, high-yield bonds that need to roll them over. if that had extended, extension of government stock, if that had extended into, q1, that would have created a credit shock. in investment banking, scale has value. we have the same balance sheet risk, assets that morgan stanley does. barclays has the scale today to compete with the large american banks. you see that in gaining market share, activities and debt capital markets. if youdon't have scale,

talk to any investment banker through a merger of investment banks, they will tell you they do not work. talk to someone from first boston, bear stearns, merger of investment banks does not work as a way to get scale. barclays, as we heard from mr. gorman and other conversations. brian moynihan yesterday. david solomon coming up. even them and their entourages, looking to germany. jonathan: far more constructive to the global banking system thean one month ago. tom: different in america. jonathan: the reason why the europeans have struggled so much, it is not just recapitalization, it is about negative interest rates of ecb. tom: setting this up for bloomberg tv and radio worldwide, one of the greatest

distinction is how these press conferences work. mr. draghi will come out with comfortably brief comments, then q&a. what is the difference in his comments versus line by line careful fed? jonathan: it has become diffusing, compared to the straight talking powell. for president draghi, increasingly, the audience follows and finds it hard to see how he sees the eurozone economy and the risks. what we see is a weakening picture for the continent. tom: foreign-exchange. look for john's show next year, the real fx. sterling moving. euro grinding weaker. dsy, hasded fx index, barely moved. different currency dynamics as subparr currencies

to em or g7. jonathan: negative interest rates, think about sequencing, 2014, it was difficult for mario draghi to get what he wanted, which was qb. he could take the deposit rate to negative territory. there is an argument that it worked. , was thearmed financing and the financial system for banks. tom: bmp, deutsche bank, dealing with 2 year piece of negative rate. that doesn't work. the point of the balance sheet, frame before paul gordon, the difference in eu balance sheet, ecb versus fed. they are totally different. jonathan: fed balance sheet is rolling down. tom: getting smaller. jonathan: ecb is not rolling off because they are investing maturing assets from ecb balance

sheet. how they are invested in the next several years -- tom: do they buy stock like japan? jonathan: they have not gone that far. tom: that worked out. jonathan: different story. next option is as eurozone economy suffers relative to 12 months ago, do they pull the trigger on the long-term financing operation? tom: in frankfurt, germany, paul gordon with us. very interesting what we will hear. what is the first question you would ask mr. draghi? paul: it depends on what he says opening. the key phrase is whether he says risk the economic growth is now tilted downside or whether he sticks to current language, which is probably balanced but moving downside. economic data, purchasing managers index, pretty bleak. it shows manufacturing and

contracting. level, theve the 50 dividing line between expansion and contraction. if he changes the language, we will be asking him, does that mean you are putting off the chance of a rate hike until 2020? if he doesn't change language, you have to ask, why is he optimistic? tom: greatly appreciate it. we look forward to the mario draghi headline. joining now, an important voice for europe and the transatlantic politics, going back to the atlantic charter of ages ago, the debris of world war ii, and the development of the nato, leading us to the norge region stoltenberg, absolutely remarkable that you wanted to the south pole -- wandered to the south pole. what was it like?

>> not by helicopter. i did not go on skis. we went by plane. we were there to celebrate the 100 anniversary of the first man reaching the southall, a norwegian. norwegian.le, a tom: the big event for nato is it survival. a challenge from trump. now you regroup. give us the philosophy for 2019? >> nato philosophy is that as long as your and north america stands together -- europe and north america stands together, we are strong. 50% economic might, and 50% military might. despite issues on trade and climate change, nato has proven capable of uniting around the

core task of defending each other. upopean allies are stepping in defense spending since president trump came to office. jonathan: his instinct there was correct. the various governments of nato have not made contributions the way they promised. did you agree with him when he started making those concerns vocal over the last year? >> i agree with him but more importantly, allies agree with him, that we need a fair burden sharing in the alliance. that is why nato allies are now investing more in defense. added $41, they have billion more for defense spending. addedear, they will have $100 billion more for defense. this is a significant change. it helps to improve. we still have a long way to go. we are turning the corner.

european allies are investing more. jonathan: where the money goes is important. where does that spending need to be made? >> modernizing capabilities, investing in modern planes, battle tanks, military infrastructure, but also training and allies working more closely together, also operations. john ofouple weeks ago, chicago gave a speech at the london school of economics. his notoriety was that, nato overreached in their a through z has him to move toward russia -- in their enthusiasm to move toward russia to expand nato. give us an update on your desire nato status or to expand toward russia, as mr. putin fears? >> that we have moved east, is

wrong. what we speak about is, new countries got independence after the cold war, they wanted democratic positions to join the alliance and for every independence of nation to choose their own path, they wanted to join and we welcome them. the idea that it is a provocation to russia if a neighbor joins nato is a dangerous idea. tom: does mr. putin feel that? if estonia or latvia is joining nato, it is a choice for them. it is a sovereign decision by an independent nation to choose their own path. norway is a neighbor of russia. in 1949 -- tom: far away from the tradition of the baltic sea. jonathan: i love the geography with you. , we are not going to

africa or asia. tom: look at the tumult in turkey and the last 24 months. how do we get turkey back to the europeans fear? >> they are an important ally. -- european sphere. isil, they control a territory as big as the u.k.. we have been able to take away that territory from them, not least because turkey as a nato ally has contributed to that fight. treaty andhe nuclear the risk the united states leaves it? >> the challenge, the threat now is that russia is violating the treaty. intermediate range weapons are banned. russia has developed and deployed new missiles, mobile,

hard to detect, short warning times, meeting they decrease the level of potential use of nuclear weapons. they are extremely dangerous. recall on russia to come back in compliance with this treaty. we will meet in brussels and continue to call them to come back in compliance. tom: mr. trump has chosen not to attend this year. if you were to run into him, what would be your message to the president and to his allies in the u.s. that want to reach back from nato and from our post world war ii alliances? >> european allies are stepping up. $100 billion more. a strong nato is good for the united states. to have friends and allies is good for them. russia, china do not have the

same allies and friends. the only time we invoked article 5 -- tom: let's go granular. bloomberg is of the admiral with tufts university. with him it always turns to summaries. how many different nations have summaries underwater in the baltic sea? are they all going to bump into each other? >> there are several nations with summaries. figures.offer precise there are several and many nations. the challenges with more military presence underwater and on the surface, accidents could tom: precisely. >> that is why we in nato believe with dialogue with russia. we need to have many lines of

communication and mechanisms to reduce risks and agree how to operate and prevent accidents from happening and if they happen keep them from spiraling out of control. tom: it sounds like a syrian discussion. jonathan: what you see happening next in syria now that the united states has to clear they want to pull out? >> the important thing is we focus on isis. nato is part of a global coalition to defeat isis could now they hardly control any territory at all. we strongly believe in training local forces so we are training iraqi forces to stabilize their own country. nato has no presence on the ground in northern syria but we believe in a political solution. we welcome the fact that turkey and u.s. presence in northern syria. jonathan: the nato secretary

general joining a sunday three of the world economic forum in davos switzerland. economic data in the united states. jobless claims south of 200,000. tom: that is extraordinary. mario draghi had to have seen that statistic. jonathan: the economy and the data backing up the idea that the american economy is better than ok. the pmi out of europe this morning spelling out a very different picture for the continent. looking ugly in various parts of the comment, including germany. for me, that is where the most concern is. mario draghi said the slowdown was temporary. in january there is no sign of a rebound. in his final year at the top of the ecb, a lot of people getting concerned as to what the ecb can actually do.

the statement from mario draghi is coming up right now. >> we will now report on the outcome of today's meeting of which wasing council also attended by the commission vice president. on our regular economic and monetary analysis, we decided to keep the key ecb interest rates unchanged. them tonue to expect remain at their present levels, at least through the summer of 2019. in any case, for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below but close to 2%. monetary policy measures, we intend to continue

investing in full the principal payments from maturing securities purchased under the asset purchase program for an extended period of time past the date when we start raising the key ecb interest rates. and in any case, for as long as necessary to maintain favorable liquidity conditions and an ample degree of monetary accommodation. income information is continue to be weaker than information as a account of softer external demand. the persistence of uncertainty, in particular relating to geopolitical factors and the tide of protectionism, is weighing on economic sentiment. at the same time, supportive

financing conditions, favorable labor market dynamics, and rising wage growth continue to underpin the euro area expansion and gradually rise -- gradually rising inflation pressures. ins supports our confidence the continued sustained convergence of inflation to levels that are below but close to 2% over the medium term. significant monetary policy stimulus remains essential to support the further buildup of domestic price pressures and headline inflation development over the medium term. by ourll be provided guidance on the key ecb interest rates, reinforced by reinvestment's of the sizable stock of assets.

any event, the governing council stands ready to adjust all of its instruments as appropriate to ensure that inflation continues to move towards the governing councils inflation aim in a sustained manner. let me now explain our assessment in greater detail. starting with economic analysis. byo area real gp increased 0.2% quarter to quarter in the third quarter of 2018, following growth of 0.4 percent in the previous two quarters. incoming data have continued to as aaker than expected result of a slowdown in external countrycompounded by and sector specific factors. while the impact of some of these factors is expected to

fade, the near-term growth momentum is likely to be weaker than previously anticipated. looking ahead, the euro area expansion will continue to be supported by favorable financing , further employment gains, and rising wages. -- the redy prices, sox in the euro area growth outlook have moved to the doubt -- the risks in the euro area growth outlook have moved to the downside on account of the persistence in uncertainties related to geopolitical factors ,nd the threat of protectionism vulnerabilities in emerging markets and financial market volatility. inflationannual

in december1.6% 2018 from 1.9% in november, reflecting mainly lower energy price inflation. on the basis of current futures prices for oil, headline inflation is likely to decline further over the coming months. measures of underlying inflation remained generally mute but labor cost pressures are continuing to strengthen and to high cost of capacity utilization and labor markets. , underlyingd inflation is expected to increase over the medium term, supported by our monetary policy measures, the ongoing economic

expansion, and rising wage growth. turning to the monetary analysis , broad money and broad money toward 7.7% in november 2018. growth continues to be backed by credit creation. the narrow monetary aggregate remains the main contributor to money growth. loansnual growth rate of to loan financial corporations stood at 4% in november 2018 after 3.9% in october. ofle the annual growth rate loans to household remained unchanged at 3.3%. the euro area bank lending serving for the fourth quarter of 2018 suggest that overall

bank lending conditions remained favorable following an extended. -- following an extended period of easing. the pass-through of the monetary policy measures put in place since june 2014 continues to support borrowing conditions for firms and households access to financing, particularly for small and medium-sized enterprises. to sum up, a check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed that an ample degree of monetary accommodation is still necessary for the continued sustained convergence of inflation to levels that are not below but close to 2% in the medium-term. in order to reap the full

benefit from our monetary policy measures, other policy areas must contribute more decisively to raising the longer-term growth potential and reducing vulnerabilities. the implementation of structured reforms needs to be substantially stepped up to increase resilience, reduce , and thel unemployment most productivity potential. ,egarding his whole policies the need for rebuilding fiscal buffers. this is important in countries where debt is high and full adherence to the civilian growth pact is critical for safeguarding physical conditions. the transparent and consistent implementation of the eu framework over time and across countries remains essential to bolster the resilience of the euro economy.

improving the functioning of the economic and monetary union remains a priority. the governing council welcomes and urgesg work further steps to complete the banking union and the custom markets union. we are at your disposal for questions. >> my first question relates to your assessment of the risk of moves to the downside. what sort of indications that have for your policy, especially for forward guidance. you told us in december that at some point you will ask committees to start working on tell charts. have they already been put to work? >> thank you. today we discuss the implications.

was essentially devoted to an assessment. where are we? why are we here? last.ng will the slowdown if the slowdown looks worst it will stay as the lower path. these are the questions we were asked and on the second question , several speakers raised this issue but know this issue was taken. we did not discuss policies. we were focused on the essentials. quite clearly implications about policy, but we did not discuss them. >> from reuters. two questions.

given that data have disappointed on the downside fairly consistently since your last meeting, what gives you confidence your economic assessment is correct and there will be a rebound. my second question is similar which is about core inflation. you predicted a rise in core inflation since the beginning of last year. it did not happen and is not happening since the beginning of last year. what gives you confidence that your assessment is correct? mr. draghi: it is one question. underlying inflation has been muted. it has been moving sideways. it is higher than the low levels reached a year ago. -- on what our confidence is based, it is based on the continuation of economic expansion.

the strong labor market performance, though it is slowing down. encouragingupon the pickup in wages. ,ominal wage growth has gone up especially in the coal counties and germany. negotiated wages so as -- show a significant pickup. we see all of these components moving in the right direction. the question is why haven't they passed through? why aren't they being passed through and a higher prices? what we are observing is there is a profit squeeze so it is a matter of time. this pass-through will happen first in the parts of the eurozone where the labor market is stronger and unemployment is lower, especially countries

where there is full employment. and then gradually, we will expand to other countries. and then the financing conditions and our monetary policy that remains accommodative strengthens our own hands in this process. >> cnbc. two questions. you are saying this meeting was more or less for the assessment and how longtand the potential downturn will last. how long will it last? another question is whether you're happy with what the market has priced into in terms of interest rates hike? you're still guiding us for the

full. -- for the full period of this year. as the market right or ed to update us? mr. draghi: let me give you a summary of the meeting. all, were we unanimous? we were unanimous about a knowledge and the weakened momentum and changing the balance of risk for growth. we are all in agreement on that. we were unanimous in assisting the factors that have caused the an increase iny general uncertainty. this increase is being produced by being at -- by threats of doubts about the multilateral rules that have underpinned our growth since the second world war.

the protracted and unclear outcome, the protracted negotiations and the unclear and theabout brexit implications this might have. if you compare the potential disruption coming from brexit for the aggregate of the euro area, just looking at the it does not seem to be an extensive disruption. we have to take into account things like value change and we have to also take into account that some countries are more exposed to events in the brexit case. we follow that. that is a sign of a contribution to be increased in general uncertainty. then of course we have the political developments in some countries in the eurozone.

this is one set of factors. another set of factors that are specific to certain countries. this has to do with the slowdown in china and the waning effects of fiscal package in the united states and the car industry in germany. to all of this, it is a long list of factors. the issue is now that there was unanimity. the key aspect to assess is the persistence of the general uncertainty as being produced by these factors. if this work should continue, we should expect a longer week momentum. finally, there was also

unanimity about assessing the likelihood of a recession being low. i do not want to give numbers, but some of them are low, others are average since the last 60 years or 50 years. , in an area like the , these estimates on to be taken with some caution. in oneever recession part of the eurozone, it can spread to other parts. there was unanimity about assessing the likelihood as low. low? why was it conditions continued to be very favorable developments in the labor market continue to be positive. nominal wage growth continues to be significant.

the lower energy price supports disposable income, the real disposable income for households , but also there is another factor to keep in mind that makes the present situation different from the situation we had at the beginning of the great financial crisis. , bank balance sheets or much stronger than they were before the crisis. by and large, the banking sector is much stronger than it was at the beginning of the crisis. conditions for continuation of credit to the economy are in place. then the discussion focused on persistence. there were two viewpoints. , the slowdown in china will not last long because we

have confidence -- and we do have confidence -- in the government's measures. everything we know says the government is taking strong measures to address the slowdown. wane.ade disputes will and the end, the brexit will not affect the eu economy that much. all these risks are being addressed by the policy response of the authorities in these countries. specific, the car industry in germany, there will be a rebound in the sector. agree is if all

there is going to be clarity on the experts and the trade sector , much of what we are seeing today in terms of weakness will likely washout. for others, the downside to , both hard and soft has lasted several quarters. all of these risk factors are not going to disappear. they are affecting confidence. you see these are the perspectives in the effect of persistence. the conclusion of all of this is the governing downslope -- the governing council will give itself more time to assess whether these risk factors have affected confidence and we will have another discussion in march when we will also have the new projections. about inflation. of course, going back to the , on theestion

, i give younflation a sense of the discussion answering your question. momentum werethis to last long and if the convergence were to happen around growth potential or even below growth potential, the time it would take for inflation to converge to our objective would be longer. ,ll throughout this, and again there was agreement about the monetary policy being accommodative, even though we stopped the net asset purchase,

there was not a tightening us some people have said. it has been very accommodative. is negative and so even the discount component to stock price has contributed to stock price to keep them higher. most importantly, liquidity conditions are abandoned. -- our abundant and will remain abundant. it. is i'm sorry? >> my second question? mr. draghi: i was asked to the same question last time. not sure it was you. back to our forward

guidance. it says we intend to continue investing in principle payments -- the other part is we continue to expect the interest rates to remain at their present levels, at least through the summer of 2019 and in any case for as long as necessary to assure the continued sustained convergence of inflation. it is both state and state contingent. when markets placed the first are hike in 2020, they using the state contingent part of our forward guidance. they assess the economic process shows they have understood our reaction function and in so doing, and the flattening of the yield curve that has taken place because it seems we

are now the end of the net asset purchase in june, they are providing accommodation through that channel. we have assessed the developments in each of these and have to validate the syndication. at this point we will just assess the situation. >> wall street journal. i do question about negative rates and their persistence. i suppose negative rates have been in place for three or four , and if the markets are correct the negative rates will continue for another 1.5 years, with the ecb need to do anything to mitigate that. you mentioned you are concerned about the impact on banks. could you introduce a tiered

deposit rate or a limited interest hike? my second question is on who else could be helping out if the weakness continues. how much of the onus will be on governments, in particular germany, which is the big that has space to cut taxes or to increase spending? thank you. mr. draghi: thank you. i will answer the second question first. how protracted the slowdown is going to be, how persistent of factors that have originated the slowdown are going to be. this applies to fiscal policy as well. by the way, fiscal policy in your area is more expansionary than last year. this is true in germany but also between many other countries.

on the first point, let me go back to what i think i said last time. negative interest rates affect and thatnterest margin is almost a to apology -- almost a tautology. when we look at the effect of , theyve interest rates have been an effective monetary policy measure and it is an effective measure now. when we look at the effect of rates on profitability of the aggregate of the banking sector, we see that by and large the positive effects of their

recovery generated by the more accommodative expansionary monetary policy produced by the negative rates, the competency -- we will have to see how the continuation of negative rates -- let me also add another factor. profitability in the eurozone is , in many cases more significantly, by matters like cost coverage ratios that in some countries are way above any average. by the presence of stocks of low performing loans that by all accounts are way above any average, by overcrowding. there are structural an