ECB chief Draghi speaking in Davos

DAVOS, Switzerland (Reuters) - Following are comments by European Central Bank President Mario Draghi, speaking at the annual World Economic Forum meeting of political and business leaders in Davos, Switzerland.

ON EURO ZONE FISCAL DEAL

"The fiscal compact, this set of rules at treaty level are very important because (they) basically subtract from national sovereignty part of the fiscal policy discretion. This is necessary for the countries of the euro area to go back to trust each other. This treaty is important because it's the first step -- though timid, though hesitating -- towards a fiscal union."

ON BOND MARKETS

"As much as spreads underpriced government risk for many years, now they are overshooting government risk quite a lot and this may go on for quite a while.

"Spreads have been the most potent engine for reform of different governments. Countries must undertake the necessary fiscal consolidation."

(Reporting by Paul Carrel and Paul Taylor, compiled by Patrick Graham)