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+target2 is seen as a tool to promote the further integration of its users internal processes including the centralisation of euro payment business,1
+the slovak republic for example is now home to a number of sizeable car manufacturing plants and over time it may become the detroit of the european union,1
+the earlier this happens the earlier economic activity employment and innovation in the eu can be lifted to a higher level,1
+the bank has made essential contributions in koreas economic development the reform of the countrys financial system and its integration into the global financial system,1
+moreover the economic size and welldeveloped financial markets of the euro area inevitably mean that it will play a role in the internationalisation of chinas currency,1
+deeper financial integration can offer more possibilities for financial institutions to better manage and diversify their relevant risks and realise economies of scale,1
+the level of productivity in the financial sector is important in terms of both the qualitative and quantitative aspects of the transmission mechanism,1
+thanks to the high level of confidence in the euro we have a financial environment all over the euro area which is favourable to growth and job creation,1
+enlargement has created the worlds biggest unified market that accounts for about one fourth of world trade and global gross domestic product gdp,1
+a virtuous circle can be expected whereby the growth of the securities markets in the euro area will make the integration and consolidation of these systems easier thereby simplifying crossborder transactions and thus supporting the further attractiveness and growth of the securities markets,1
+research on the bank lending channel and the effectiveness of our credit easing programme is particularly welcome and was well represented at our workshop,1
+the russian presidency has given special attention to the fourth issue longterm investment financing for growth and development,1
+the global economy has become increasingly interconnected and its degree of integration will most likely continue to increase in the future,1
+however as the sector continues to expand and increase its role in lending to the real economy as its interlinkages with the wider financial sector deepen and as the footprint of large institutions grows nonbanks will only gain in systemic importance,1
+at the same time over the last decade eu legislation has been growing dramatically in scope and coverage for many areas and segments of financial markets,1
+by increasing intraeuro area fdis and mas companies in europe are able to reallocate their capital in a more efficient manner,1
+the development of this market has been strengthened by the eurosystems operational framework of open market operations which is mainly based on reverse transactions and the implementation of the new target realtime gross settlement payment system in participating countries,1
+stijns intellectual endeavours have significantly broadened our understanding of various aspects of housing markets and financial stability to name two examples,1
+impact on trade foreign direct investment and crossborder portfolio flows    the effects of globalisation are channelled via trade in goods and services all of which has a tangible impact on businesses and households,1
+by way of comparison the united states has traditionally been characterised by a very high degree of income and consumption smoothing across states,1
+our previous expectation of a reacceleration of real gdp growth in the first months of 2006 has thus materialised confirming our assessment that economic growth is broadening and gradually becoming more sustained,1
+of course just as important for us are the broad economic benefits of integration in terms of increased efficiency and competitiveness of the economy,1
+over the past few years progress in restructuring and consolidating the banking industry in accession countries has contributed to greater stability efficiency and also integration with the eus financial sector,1
+structural reforms permit a higher level of sustainable longrun economic growth by increasing the supply of production factors and improving the efficiency with which they are used,1
+emerging countries are becoming more and more integrated into the world economy,1
+the imfs special standard for dissemination of economic and financial data has become a widely recognised benchmark to which a large and increasing number of countries have subscribed,1
+in this regard the degree of synchronisation of business cycles across euro area countries seems to have increased and currently appears to be at a historical high,1
+the pandemic has accelerated digitalisation and the related gains in productivity,1
+in the eu the promotion of a knowledgebased economy and the clustering of more diversified but complementary competencies could further advance innovation agglomeration effects and economic dynamism,1
+i firmly believe that the international cooperation among public authorities will continue to foster financial integration development and stability,1
+card payments are mostly concerned by the second effect of financial integration and the fact that it makes financial services cheaper and more easily accessible to european citizens,1
+it would be useful to examine the available evidence in a systematic manner and try to quantify and estimate the contribution of education and research to the development and efficiency of the financial system and the resulting direct and indirect effects on total productivity growth,1
+with the adoption of our app forward guidance has been extended to key parameters of our purchases and has helped investors form expectations about the size of app and its duration,1
+by the same token structural reforms that increase confidence in economic prospects and encourage entrepreneurs to capitalise on todays extremely accommodative financing conditions will make our policy commensurately more powerful,1
+indeed by fostering real convergence through structural reforms thereby improving the supplyside of the economy through enhanced flexibility in goods and labour markets nominal convergence will also be enhanced,1
+both domestic demand and exports made significant contributions to this growth confirming the sustained and broadbased nature of the current expansion,1
+their subsidiaries and branches have played and will continue to play a central role in improving the efficiency of financial intermediation across the region and contributing to credit availability,1
+trade investment and financial transactions between countries foster growth and prosperity,1
+this should contribute to improving the investment climate and supporting closer economic relations between the eu and russia,1
+the earlier this happens the earlier economic activity employment and innovation in europe can be lifted to a higher level and standard,1
+lending rates for euro area firms and households are at historic lows and have converged across the euro area while growth in bank lending volumes has recovered significantly since the beginning of 2014 thereby supporting investment and job creation,1
+during the first half of 2004 economic activity showed relatively dynamic growth supported by a strong expansion in the world economy,1
+integration has also advanced in the repomarket probably one of the most dynamic segments of the money market,1
+as investment recovers it should also spur a pickup in global trade in the medium term,1
+the lisbon agenda has tried to take a step in this direction by seeking to enhance the knowledgebased economy increase labour participation and foster financial integration,1
+national governments have in addition undertaken an unprecedented concerted fiscal expansion to stimulate demand and foster confidence in our economies,1
+indeed employment has grown by 18 in 1999 and by over 2 in the first half of 2000,1
+1 this positive effect has a wellknown microeconomic underpinning financial deepening alleviates financing constraints at the firm level allowing firms to grow by engaging in higher capital investment and rd investment among other things,1
+there are various immediate sources of output per capita growth,1
+taken together the broadening of the recovery across countries and sectors suggests that it has not only gained momentum but importantly the recovery has gained robustness,1
+globalisation is the term used to describe the growing interdependence of economies via trade production and financial market linkages,1
+moreover having highlytrained human capital facilitates the assimilation of technological progress and innovative technology increasing the overall productivity of the economic system,1
+digital technologies together with trade liberalisation have facilitated the growth of global value chains,1
+financial integration which increases the efficiency and fosters the development of the financial system helps to raise the economys potential for stronger noninflationary economic growth,1
+in the euro area mergers and acquisitions across sectors have accounted for roughly 30 per cent of all financial industry deals in terms of value over the past five years,1
+in addition the value chains in which they participate mainly involve trade in durable goods which have a high level of income elasticity,1
+i would like to conclude this part of my speech with three remarks first trust in the course of structural reform as fostered by the lisbon agenda and a better understanding of the economic benefits structural reforms entail are conducive to raising consumer confidence and private consumption,1
+3 at the same time the importance of remittances has grown they have overtaken foreign direct investment as the largest source of external financing to emerging economies,1
+the financial industry retains a primary responsibility and has strong incentives to promote the smooth functioning of the financial system,1
+since then there has been a widespread process of capital account liberalisation coupled with a growing integration of international financial markets,1
+in general banking competition brings very positive aspects for the real economy and to welfare and there is no doubt that liberalisation of the banking sector in spain has been very positive for the country,1
+it is clear that all these ongoing developments in the financial markets for which the introduction of the euro has been a catalyst are contributing to a more dynamic functioning of the euro area economies and to the growth potential of the euro area,1
+intraeuro area foreign direct investment fdi has also grown considerably and is catching up with extraeuro area fdi,1
+i highlighted two major issues which are currently attracting our attention in a number of member states robust credit growth and rapidly rising house prices,1
+in fact most forecasts suggest that euro area real gdp growth will be above 3 in 2000 and 2001 reflecting both the favourable external environment and buoyant domestic demand,1
+in this article the authors identify a clear link between product market reforms aimed at increasing competition and the rise in labour productivity which constitutes a key determinant of longterm output growth,1
+this achievement has been accompanied by economic performance in terms of growth per capita and job creation that compares positively with other large advanced economies,1
+in the euro area domestic demand has contributed to the recovery helping to create 114 million new jobs since mid2013,1
+by smoothing entry opportunities and allowing greater customer information and mobility internet banking undoubtedly has the potential to make retail banking markets more integrated and contestable,1
+while intraeuro area trade has grown robustly since the introduction of the euro extraeuro area trade has recorded even more rapid growth,1
+a deepening in the integration processes of both manufacturing and services industries offers the prospects of significant gains at the economywide level,1
+for the euro area these international linkages are highly significant particularly because economies of scale and crosscountry technological spillovers support euro area economic growth,1
+but now we also have strong empirical evidence based on ecb research analysing the available evidence for many countries and sectors that the size and depth of capital markets have a significant positive impact on economic growth,1
+the performance of a financial system and notably its efficiency is influenced by its fundamental features in conjunction with the processes of integration and financial development,1
+the euro has acted as a catalyst for the integration of the euro area financial markets,1
+the results show beneficial effects on both the demand and the supply side the latter arising from gains in productivity and competitiveness as physical and human capital stocks are increased,1
+as pointed out by noyer 2000 in the context of the programme of economic and monetary union the processes of economic activity became more intertwined in the european union which naturally led to the development of more crossborder financial interconnections,1
+broadly speaking this means two things first our policy measures have boosted confidence in the euro areas growth prospects which has brought foreign investors back to euro area stock markets,1
+the euro and the development of the european financial markets  one very important structural effect is that the single currency is expected to lead to improved competition and increased price transparency in the markets for goods and services,1
+for slovakia further improving the business environment and judicial system would help promote continued economic success over the next ten years,1
+for example the more recent accelerated integration of emerging markets into the global economy may have led to an increase in global savings and as a result to a growing demand for financial services and new financial operators,1
+however the single monetary policy will generate new activities in particular in connection with the emergence of larger and deeper financial markets,1
+consumer and business sentiment has risen to a sixyear high supporting expectations of a further strengthening of growth in the coming months,1
+the ecbs strategy with its commitment to achieve price stability over the medium term can contribute to this wider objectives by creating favourable conditions for growth employment and welfare,1
+indeed globalisation has granted households and firms easier access to international financial markets,1
+it is partly related to the important labour market reforms implemented in many euro area countries which among other things have increased the incentives to work,1
+the contribution of investment to growth has also been steadily rising,1
+chinas domestic development has taken place in parallel to its growing economic integration with the rest of the world,1
+this confirms the view that euro area economic growth has been now more broadly based and also selfsustained,1
+that said it is clear now that the euro area will move faster than others in terms of economic and political integration there will be a europe of different speeds with the euro area as its engine,1
+further integration of the european banking market  the first effect is the likely consolidation of the european banking sector,1
+the euro area is a bankbased economy loans are the main source of financing for companies and almost the only one for small and mediumsized enterprises,1
+economic integration within europe has gone hand in hand with europes integration into the global economy,1
+first the greater cyclical synchronisation of the euro area linked inter alia to a single monetary policy and common exchange rate together with its size will make economic developments in the euro area of considerable importance to the world,1
+the effects of technological development the penetration of the digital technologies and the deregulation of markets are continuing in the stabilityoriented environment created by economic policies,1
+third the highly competitive and unregulated market structure of the us economy has facilitated the emergence of new lines of business and the harnessing of the new technologies to promote efficiency,1
+collectively this has contributed to a recovery in the euro area that is now largely driven by domestic demand,1
+a better understanding of these benefits will lend support to the implementation of reforms and raise consumer confidence in the future thus also helping the ongoing recovery of the euro area economy,1
+as i have already mentioned financial integration is perceived to be a key factor in the development and modernisation of the financial system which in turn leads to greater productivity and competitiveness a more efficient allocation of capital and therefore increased potential for economic growth,1
+the growth of emerging economies has brought a much higher level of economic prosperity to hundreds of millions of their people,1
+an established track record of the eurosystem with reference to its primary objective of price stability and continuing integration of financial markets in the euro area will undoubtedly contribute to the further internationalisation of the euro,1
+moreover the declines in consumer price inflation observed in the second half of 2001 and expected over the course of 2002 will support higher growth in real disposable income which in turn should underpin growth in domestic demand,1
+growth has been underpinned by domestic demand as well as strong exports which reflects the increased integration of slovenia with the eu and the euro area,1
+research suggests that deeper equity markets are more effective in bringing economies closer to the technological frontier as well as in greening the local economy,1
+i will then explore how education research and the diffusion of knowledge have supported and facilitated the development of financial markets and how education can further contribute to fully realising the benefits of financial innovation thereby supporting through this channel our economies growth performance,1
+moreover in many of these emerging economies competitiveness has also been stimulated by investment in the technology sector,1
+first several emerging economies  china in particular  have integrated in the global economy to an unprecedented degree,1
+diverging trends in total factor productivity growth are also remarkable with the us showing significant improvements in recent years,1
+indeed the euro has contributed to the integration of financial markets in the euro area which has increased their liquidity and efficiency and made the euro more attractive to international investors,1
+additional benefits from the globalisation of financial markets include the more rapid spreading of technological advances financial innovation as well as more generally financial performance to the various parts of the globe,1
+in germany for example they financed many public infrastructure projects and facilitated the large urban agglomeration resulting from industrialisation,1
+crossborder interbank loans have increased to almost a quarter of total interbank loans and euro area banks holdings of securities issued by banks in other euro area countries have almost tripled over the past decade,1
+it has been the main driver behind the remarkable increase in economic and financial integration as well as the transformation of the financial system over the past decade,1
+this is mainly due to more sustained growth in world gdp an increase in global trade integration and a very sizeable increase in trade with the ten new members of the european union,1
+progress in the euro area recovery has been mostly homegrown with a virtuous cycle increasingly taking hold between rising income and spending in both the corporate and the household sector,1
+in the last three years the world product has grown at a rate of 47 per annum  the highest rate in 30 years for a period of this length,1
+many public administrations have already started to make extensive use of new information and communication technologies that streamline the administration and increase the efficiency of the services offered to the public,1
+over the first decade of the euro gdp growth per person has been of the same order of magnitude as in the united states,1
+for the corporate sector financial market integration means improving financing conditions with a new variety of options,1
+robust economic activity is further being translated into a substantial amount of job creation,1
+the prospects of full migration to the sepa credit transfer and direct debit schemes form the foundation for innovative payment services offered on a paneuropean scale,1
+4 for example through higher trend productivity growth resulting from the increased ability of firms to adopt new production technologies in a more flexible economic environment,1
+more specifically aggregate demand is expected to increase reflecting the positive intertemporal substitution effect of lower interest rates onto households and firms consumption and investment decisions,1
+with the single market the euro and the creation of supranational institutions economic and monetary integration is well advanced,1
+a digital euro would also generate synergies with other elements of our strategy facilitating the digitalisation of information exchange in payments through einvoices ereceipts eidentity and esignature,1
+in the past two decades financial innovation and liberalisation have made important contributions to the overall productivity of our economies,1
+looking forward i believe that greater standardisation of abs products is a key goal to stimulate greater market activity,1
+they also find that policies that foster financial development such as financial integration ultimately contribute to growth,1
+the ongoing economic expansion of the euro area is largely supported by developments in domestic demand,1
+we are very much satisfied by the fact that economic activity is now expected to grow more strongly than anticipated earlier,1
+as the recent experience in european countries has demonstrated reforms are paying off by contributing to significant employment growth and productivity gains and there is growing acceptance by the public of such structural reforms,1
+finally the monetary union and the completion of the single market are promoting corporate restructuring and facilitating a reorganisation of economic activity which is improving the efficiency of the economy,1
+seeing capital and capital accumulation as an important input factor financial development is linked most clearly to this source of growth,1
+but since 2012 improvements in deficit countries have been driven predominantly by robust growth in exports,1
+the increase in interdependence on the financial side has been even more impressive with the share of gross international asset holdings in world gdp  which provides a measure of financial openness  having exhibited an eightfold increase over the last 25 years now standing at more than 130 of world gdp,1
+this notwithstanding currently available forecasts both by international organisations and private institutions expect that economic growth in the euro area will supported by domestic demand be broadly in line with trend potential growth in 2001,1
+the scope of international cooperation is broadening significantly as our economies become increasingly connected,1
+the broadening of the capital markets and their greater integration are contributing to a more efficient allocation of savings,1
+at the same time private sector domestic demand should increasingly contribute to economic growth benefiting from the accommodative monetary policy stance and the measures adopted to improve the functioning of the financial system,1
+these improvements and the increased efficiency and liquidity of the financial markets will help the euro area economies to become more competitive and to grow faster in the longer run,1
+given that greater efficiency stimulates the demand for both funds and financial services this should also result in financial markets increasing in size,1
+this adjustment appears to have intensified in recent years as there has been an increase in merger activity an establishment of alliances and an introduction of new products and services often based on modern information technology,1
+the us have traditionally been characterised by a very high degree of income and consumption smoothing across states that has only been increasing over time,1
+the evidence available for the united states shows that banking integration across the federal states has led to a better alignment of business cycles and a reduction in the volatility of economic activity employment and personal income growth across the united states,1
+foreign direct investment also made a very significant contribution to irelands growing economy,1
+the different elements of this comprehensive package will be mutually reinforcing in supporting favourable financing conditions for businesses and households which will sustain investment and consumption,1
+in line with this approach crossborder entry into the banking sector and crossborder business flows provide an indication of progress in integration,1
+these initiatives also involving exchanges located in noneuro area countries notably the united kingdom and the united states reflect increasing financial market integration as well as technological factors such as the increased potential for economies of scope and scale resulting from new information and communication technologies ict,1
+in this field there have been substantial improvements in the euro area in particular concerning the educational level of young people,1
+second industrial growth and infrastructure the creation of the german empire also speeded up the process of industrialisation,1
+for the banking industry in particular enhanced financial integration results in the widening of business opportunities for individual institutions and efficiency gains so that the more efficient institutions gain market share at the expense of the less productive banks as well as benefiting from risk diversification and economies of scale and scope,1
+in particular equity funding has been shown to be important for incentivising green innovation and supporting the reallocation of resources to greener activities,1
+countries with more competitive market conditions better education and more investment in rd and innovation policies can maximise the beneficial impact of managerial capital on productivity and growth,1
+most studies point to the potential competitive pressure has to increase employment at least in the long run and to boost productivity trends by improving production efficiency and by enhancing the incentive to invest and innovate,1
+over a period of a few years financial markets in the euro area have grown in size and have come to play a more important role in the economy,1
+this in due time will contribute to the smooth functioning of the financing of the euro area economy as savings are likely to be channelled more efficiently and swiftly through the economy,1
+the successful creation of the euro area and further economic integration within europe has gone hand in hand with the integration of europe within the global economy,1
+a recent study for example found that the overall level of euwide real gdp may increase by more than 1 over a decade as a result of further integration and that employment would also benefit,1
+the most substantial increase in crossborder activity and market integration has taken place in wholesale activities,1
+over the past decade this process involved and is evidenced by the unprecedented and pervasive growth in the crossborder trade of goods and services as well as of financial and real assets but it also involves the swift transfer of technologies information and ideas,1
+measures working in this direction will also facilitate the restructuring of the economy and foster innovation productivity growth which ultimately leads to sustainable longterm economic growth,1
+as the us experience has shown a more integrated market on the funding side will also help to promote the standardisation of the market for underlying mortgage products,1
+ultimately these globalisation forces provide the scope for many economic benefits including more efficient resource allocation along with welfare gains from deepening specialisation cheaper products and greater product choice,1
+for instance a recent ecb survey of large euro area companies highlighted that firms see the potential for digital technologies to increase productivity growth in particular by promoting knowledge sharing and enabling more efficient production processes,1
+above i have also given various examples of the important role the imf has played in enhancing statistics for the international financial system at the worldwide level,1
+it is the view of many authors that a welldeveloped corporate bond market facilitates innovation and supports the transition of mediumsized firms into large enterprises,1
+this evidence is broadly in line with the hypothesis that information and communication technologies have the largest impact on productivity growth indirectly namely by sparkling further innovations in managerial processes procedures and organizational structures and by facilitating complementary innovations,1
+the euro is used for liability diversification by firstclass private addresses most of them located in industrial countries in particular the united states and the united kingdom,1
+in particular the addition of indicators for a number of important underlying factors of integration related to financial institutions and market infrastructures is envisaged,1
+the structure of the euro area financial system with the dominant role played by the banking system in the financing of the economy implies that the transmission of the ecbs policy rates to the euro area bank lending rates is of utmost relevance for economic activity,1
+it could give a jolt to productivity especially in europe consider that it adoption has been a key factor in the united states exhibiting faster productivity growth than europe since the 1990s,1
+it should contribute to a deeper economic union that is commensurate with the degree of economic integration and interdependency already achieved through monetary union,1
+all of the financial infrastructures represented around the table today are at the forefront of providing safe and innovative solutions to the european market,1
+it has gradually become clearer that there are good prospects for a sustained upturn in economic activity in the years to come,1
+real gdp growth increased during the second half of 1999 and leading indicators point towards a continuation of strong growth in the euro area during this year,1
+the euro has facilitated economic integration with financial integration increasing by around 2530 in those eu countries that first adopted the euro and trade integration increasing by an average of 510 since 1999,1
+crossborder banks may act via their expansion across jurisdictions as important drivers in the financial integration process and thus contribute to enhancing the overall efficiency of the banking sector,1
+additionally business cycle synchronisation across euro area countries has increased in recent years,1
+ the utilisation of this currency in the global financial market is the driving force behind its internationalisation,1
+and thanks to the benefits in terms of standardisation and interoperability the scheme would also support our strategic autonomy and economic efficiency,1
+during the last decade there has been a continued process of integration in european financial markets which has brought about a surge in crossborder trading,1
+5 not surprisingly the benefits of this financial integration are particularly clear for open economies which have recorded higher average growth rates in recent years,1
+1 and the region also recognised that being a major hub enabled it to extend its reach further by becoming a genuine gathering point for talent technology and knowledge from all over the world,1
+this has triggered increasing crossborder competition and has provided an incentive for the harmonisation of market practices,1
+an important advantage of this set of policy actions is that they can simultaneously contribute to higher sustained output growth lower ulc growth and improvements in competitiveness,1
+in other words the euro area global competitiveness and trade specialisation in comparison with that of its trading partners is of great importance,1
+households  are increasingly conscious of the opportunities offered by an expanded economic and financial area,1
+sizeable financial benefits are expected from the integration of retail payment systems as a result of standardisation and the openingup of payment services markets to more competition,1
+increasing the flexibility of labour markets and deregulating product markets will enhance the growth potential of the euro area by allowing for a better exploitation of the opportunities which are offered for instance by the single currency and the new information and communications technologies,1
+the eu single market offers a unique businesses environment with direct access to over 500 million potential business partners employees and consumers with relatively high purchasing power,1
+but as this coincided with deeper european integration in the second half of the 20th century rising living standards have contributed to the appeal of europe and its widespread support,1
+good prospects for households income from the stabilisation in the labour markets the sentiment in the survey data finds its support in a number of encouraging developments both in the household and in the nonfinancial corporations sector,1
+2 they also help economies to catch up in terms of technology and financial market development through the transfer of knowledge a critical determinant of growth,1
+groups active in many eu countries typically engage in significant wholesale and investment banking activities on a crossborder basis,1
+over the last decade these countries have experienced remarkable transformations in their financial sectors,1
+for example the increase in productivity in the second half of the 1990s led to strong growth in consumption in the united states financed by debt,1
+similarly a higher usage of electronic retail payment instruments seems to stimulate banking business,1
+the prospect of achieving more stable conditions in the foreign exchange markets globally markedly deeper and more efficient financial markets in europe and increased crossborder competition are likely to effect the international financial system as a whole,1
+globalisation technological advances and financial innovation are altering economic relationships at an unprecedented pace,1
+as regards economic activity it appears that the sustained real economic growth experienced in the euro area in the first half of 2007 has continued over the summer,1
+starting with external developments there are indications of a gradual firming of economic activity which should in turn lead to a gradual strengthening of the external demand for euro area products and services,1
+in the second quarter of 2006 euro area labour productivity growth is estimated to have grown by 14 in annual terms,1
+the growth in loans to nonfinancial corporations has also picked up over recent months,1
+as previously explained the money supply development of m3 plays a prominent role in our strategy,1
+importantly the impressive enlargement of the eu and the successful creation of the euro area have gone hand in hand with europes integration into the global economy,1
+one example of its improving resilience is the fact that domestic demand is now the mainstay of real gdp growth,1
+more and more goods and services have become tradable and domestic companies have increasingly engaged in international trade,1
+4of course the convergence process is heavily influenced by globalisation through the specialisation gains from international trade and international knowledge spillovers among many other mechanisms,1
+all of these four elements of stability connected with the single currency are instrumental in improving the environment for financial institutions and private sector companies,1
+moreover as numerous studies have shown the greater economic efficiency achieved with financial market integration would ultimately foster a higher potential growth path of the economy,1
+moreover higher growth in value added has been found to be driven by faster growth in labour productivity than in capital accumulation supporting the idea that equity markets play an important role in the financing of innovation and tfp growth,1
+todays information and communication technologies have opened up a vast field of research into the role of narratives as determinants of economic developments,1
+throughput objective the eurosystem statistical function aims to be a production network for the highly efficient and harmonised compilation of both eurosystem and national statistics reaping economies of scale and using stateoftheart techniques while respecting the specific setup of the eurosystem,1
+policymakers have already launched important initiatives to step up crossborder cooperation in line with the growth of crossborder banking,1
+moreover the euro has benefited from crossborder trade investment flows and the overall economic stability of the euro area,1
+there are three main effects i would like to mention in these concluding remarks     first the critical mass achieved by the full integration of twelve national markets into one has effectively improved the prospects for an efficient allocation of capital to the most productive investment opportunities hence for higher sustainable growth,1
+in so doing it can contribute significantly to the establishment of favourable conditions for sustained economic growth and high employment in the medium term,1
+the economic gains of financial integration coincide with the objectives expressed in the lisbon agenda of granting the citizens of europe access to a genuine single market in which financial services are offered on the same conditions within and across borders,1
+openness and international integration can lead to a dramatic improvement in economic performance through the introduction of new technologies and access to larger markets,1
+the principle of decentralisation introduces a national anchoring that creates closeness to the local financial communities and the local general public,1
+according to a recent eu pilot survey on rd investment european companies expect their global investment in research and development to grow by about 5 per year over the next three years which represents a considerable improvement over recent years,1
+for many europe is a proxy for globalisation which has created prosperity as well as strong interconnections,1
+the shift towards electric vehicles for example may go handinhand with increased autonomous driving revolutionising the transport industry,1
+as this interdependence within the euro area becomes stronger the euro area is also becoming a more open economy with increasing extraeuro area trade,1
+emerging market countries and their access to international financial markets    the financial integration of countries into the global economy continues at a high pace,1
+productivity gains are a key factor driving longterm economic growth and increases in living standards,1
+the economic literature tells us that an integration of financial markets is very likely to contribute to economic growth by making the allocation of capital more efficient,1
+the role of market integration market integration in turn leverages the potential of market development initiatives and enhances market depth,1
+there are also clear signs that integration in the european markets will accelerate in the future and that further consolidation of european trading and the post trading infrastructure is on its way,1
+moreover it is also supported by easy financing conditions as our policy measures have passed through the financial system to the benefit of businesses and their customers,1
+this has led to a very advanced stage of economic and financial integration in the eu with the single market and the single currency as its most visible characteristics,1
+innovative developments that lead to better services can support commerce in particular ecommerce as well as productivity and income growth,1
+such firms have the capacity to sell their goods and services abroad easily and profitably contributing to longerterm economic growth and employment and ultimately to the welfare of citizens,1
+the single market also stands to benefit considerably from the wide range of new opportunities that have been opened up through the launch of sepa as it will promote competition and innovation as well as improve conditions for customers,1
+the past decade is also testament to the fact that price stability goes hand in hand with economic growth and job creation,1
+the first is withinfirm growth which depends on the generation and diffusion of new innovations and management techniques,1
+the more we integrate and develop eu capital markets the more we will support a robust and uniform recovery across our economies along with the transition to a lowcarbon sustainable and digitalised economy,1
+in short by maintaining a stable macroeconomic environment economic policy can thus contribute to economic growth and welfare,1
+the growing inclusiveness of this economic expansion is partly due to the renewed vigour of small businesses which are a key engine of income creation in our economy,1
+taken together our measures have led to a significant and broadbased easing in financing conditions for euro area firms and households which bolsters consumption and investment expenditure,1
+the accelerating diffusion of the internet and related digital technologies in recent decades may provide an example of the former while the emergence of china as a global manufacturing hub exemplifies the latter,1
+the private sector naturally also plays a key role in the development of integrated financial markets,1
+moreover the monetary policy of major advanced economies is not only beneficial to their domestic economies but has positive externalities for the growth of the global economy as a whole including emerging market economies,1
+increasing markets through geographical diversification can lead to efficiency gains via the realisation of economies of scale and scope,1
+viewed from outside these two regions are large economic blocs that have led globalisation and the surge in world trade financial flows and innovative ideas that has been getting stronger during the last few decades,1
+this expectation is also conditional on a projected gradual recovery in foreign demand in line with expected stronger growth in the world economy which together with low interest rates should lead to a resumption of stock building and stronger investment,1
+moreover in relation to structural forces the pandemic may also have accelerated the digitalisation of the world economy which could operate as an antiinflationary force by increasing national and international competition including in previouslysheltered services sectors,1
+in addition several other important developments have increased the usage of renminbi for investment purposes i the currency is already available to the corporate sector,1
+in view of these effects it is altogether natural that the ecb has started to follow with great interest economic and financial developments in the wider europe particularly in those countries which have applied for eu membership,1
+the growth rate of loans to households is also the strongest since 2012 with consumer credit now acting as the most dynamic component reflecting the ongoing strength of consumption,1
+the deepening of the markets has been particularly strong for bonds  eurodenominated bonds issued by private entities doubled during 1999 and market activity remained quite strong until the summer of this year,1
+a recent imf report highlights the fact that the german automobile industry embrace of this trend has allowed it to remain a leading producer and exporter of passenger cars with a global market share of around 20 per cent as of 2012,1
+furthermore we expect consumption growth to further strengthen gradually over time in line with developments in real disposable income as the labour market situation and in particular employment growth gradually improves,1
+deeper and more efficient capital markets with equity playing a greater role can be instrumental in encouraging the more rapid development and adoption of new technologies including green technologies and in facilitating the provision of finance across the eu,1
+inflows of foreign direct investment fdi have largely increased being a key driver of productivity growth and export dynamics,1
+it is also possible that information technology contributes in general terms to a faster transmission of financial impulses throughout the real economy,1
+financial development may also help to realise faster technical progress embedded in the capital stock to achieve higher economic growth,1
+some euro area countries have witnessed a long period of strong growth in domestic demand,1
+the expanded app together with our credit easing package launched in summer 2014 has also had a positive impact on both market and bank credit dynamics,1
+by now the understanding of our strategy has greatly improved and the recent evaluation and clarification of the strategy has certainly helped to this end,1
+but anecdotal evidence suggests that foreign interest in the real economy is also growing with several multinational companies announcing plans to increase their output at greek units in the coming years,1
+there is a significant link between business entry rates technology creation and diffusion and productivity growth,1
+as a consequence the growing role played by financial markets is bound to increase the importance of crossborder financial flows,1
+wageproductivity links have indeed proven to be an important factor in countries external positions,1
+global economic growth was very dynamic in particular in emerging asia and with high growth rates in the new eu member states,1
+it acts as an engine for creating a more integrated retail payments market in europe enabling competition and innovation and making retail payments in general more efficient safer and easier for users,1
+an important factor is the rising trade with the new eu member states which has increased trade integration within the enlarged eu,1
+some of them especially in asia have turned into nearly industrialised countries with decades of growth rates above those of highincome countries and they have themselves become sources of international capital flows,1
+evidence also clearly indicates that the recovery in domestic demand is becoming more broadly based,1
+labour markets  progress with labour market reforms has become evident from the increase in employmentintensive growth in the euro area,1
+financial intermediation and smes in the euro area banks have historically played an important role in financing the real economy,1
+supported by the dynamism of the real estate market the peripheral economies grew rapidly,1
+as i have already outlined the integration of euro area financial markets has progressed rapidly over the last two years,1
+it has also established over time close relationships with the rest of the banking and financial system both at home and in the international sphere,1
+in addition the euro has made a significant contribution to the integration of financial markets in europe,1
+financial integration is a key factor for the development and modernisation of the financial sector in europe,1
+price stability contributes to the efficient allocation of resources in the real economy thereby supporting longterm growth,1
+a passingthrough to consumer prices was facilitated by the faster pace of economic growth that was progressively materialising in the euro area,1
+other indicators corroborate the finding that at the aggregate level the real economy of the euro has proved relatively dynamic in comparison with the us real output per capita has grown at a similar pace in the euro area as in the united states,1
+the convergence of the financial structures of these economies with those of western europe has also been significant,1
+the universities and research institutions of the united states have achieved impressive results as regards the development of leadingedge competence in most areas of science,1
+the ssm nonetheless increases the potential to reap economies of scale within the single market for instance by allowing banks to optimise their internal management of capital and liquidity,1
+the performance of the euro area economy this year is characterised by the ongoing recovery of economic activity at a pace somewhat faster than previously envisaged,1
+by reducing the barriers for crossborder portfolio allocation emu has had an impact on regional financial integration not only among euro area member states but also visàvis other european countries which is particularly sizeable in the fixed income market,1
+and there are good reasons to expect that scarcity will materialise first and foremost in those market segments with a higher duration potentially helping to maximise the economic impact of our operations,1
+this is an essential driver of economic progress benefiting consumers businesses and the economy as a whole and will also provide a healthy ecosystem for financial services,1
+however recent studies have found evidence that in developed economies a more relevant channel through which financial intermediation affects economic growth may work through increases in total factor productivity,1
+economic integration has also helped to establish a more competitive environment,1
+this development has been even more pronounced in the euro area compared with other regions due to a variety of factors including the introduction of the single currency further financial market integration through the use of credit derivatives and related financial instruments and an innovative financial industry,1
+it seems that the new environment created by the common currency has been an important catalyst in stimulating the start of the structural reform process,1
+more generally making progress on banking union and capital markets union would further support the european unions growth prospects by increasing competition reaping the benefits of economies of scale and boosting entrepreneurial risktaking through an expansion in international risk sharing,1
+the creation of the euro also gave rise to expectations of a broad based convergence of underlying economic developments,1
+the initiatives in the telecommunications sector show how reforms that succeed in increasing competition in previously sheltered sectors considerably enhance productivity lower relative prices and lead to new and better products thereby increasing consumer welfare and job opportunities,1
+the increased competition in credit markets has in turn compressed rates driving lending and improving the macroeconomic picture,1
+in the past we have seen a close relationship between global value chain growth and the share of imports in total output,1
+financial globalisation involves the increasing integration of financial markets and the growing presence of crossborder financial institutions,1
+a landscape of cooperation and competition among national treasuries is developing this will eventually be reflected in more efficient and integrated euro government bond markets,1
+to sum up financial systems provide an important contribution to productivity innovation and noninflationary economic growth in the long term,1
+this process of integration in european financial markets coincided with the trends towards globalisation and securitisation,1
+progress made by those central banks already operating at the technological frontier can be expected to increase the speed of technological diffusion across borders,1
+this being the case the governing council will carefully monitor further evidence of an acceleration of productivity growth in the euro area,1
+to this end the european commission has recently published an action plan of regulatory changes to improve the single market for financial services that would certainly  when implemented  boost the integration and marketdriven development of the european securities markets,1
+the latest available information from economic indicators and survey data suggests that economic activity continues to strengthen signalling in particular an improvement in the manufacturing sector,1
+at the european level authorities are well aware of the potential contribution of new technologies to the creation of an integrated european market in financial services and several initiatives have been taken to fully benefit from it,1
+by fulfilling its mandate it will contribute to creating the appropriate conditions for sustainable growth of incomes and employment in the community the ultimate goals of economic policy,1
+the euro has also acted as a catalyst in the process of financial integration by widening and deepening the euro area financial markets,1
+i agree with you i have seen the study by the bundesbank and other studies that the application of new information and communication technologies is proceeding at a very rapid pace also in europe and in some european countries even faster than in the united states,1
+the favourable impact that opening up sectors to competition has on prices growth and employment has become clear in the telecommunications and energy sectors,1
+moreover the integration of securities and wholesale markets plays an important role for the funding of the banking sector,1
+another major benefit of the cmu is the contribution to convergent growth among member countries resulting from the improved circulation and allocation of savings across the union,1
+the economic policies implemented in these two areas act as a reference for the world economy,1
+they suggest that the agglomeration of production factors by generating an environment that creates positive externalities the presence of competitors and informal links with complementary businesses the supply of qualified labour and investment capital and the proximity of research capacity is increasingly important and could indeed increase specialisation and reduce crossborder trade within industries,1
+the expansion of these products had both contributed to and been supported by a strengthening of the originateanddistribute od business model of financial intermediation,1
+financial globalisation enables the international community to share significant benefits in terms of enhanced financial efficiency and economic growth but it also makes the safeguarding of financial stability a more interdependent endeavour,1
+credit aggregates especially credit to the private sector are also growing rapidly at an annual rate of above 10,1
+financial development can have a significant impact on the economic performance of our economies,1
+financial innovation has undeniably supported the deepening of financial markets making them more efficient and enhancing their potential to support growth and distribute risk,1
+11 in this sense the incentives for withinfirm innovation may be closely linked to the capacity for betweenfirm reallocation,1
+in particular several empirical studies suggest that convergence in the region seems to have been driven by the growth of total factor productivity,1
+in the longer term the need to diversify is also likely to accelerate the green transition in europe and massive investment in renewables will boost both energy supply and aggregate demand over time,1
+this relates in particular to current work being done to strengthen the international financial architecture which is close to the area of traditional competence and expertise of the central banking community,1
+consequently after the recent enlargement the european union has become a more heterogeneous region in terms of economic development,1
+financial integration is also highly advanced through the ownership links between eu commercial banks and the banking systems in central and eastern europe,1
+by diversifying the financing sources of the real economy the nonbank financial sector plays an important role in financial intermediation,1
+these beneficial effects of our policy measures have been accompanied by improvements in direct market financing conditions and taken together have made a substantial contribution to the economic recovery,1
+29   housing credit has been growing in importance for banks in many jurisdictions over the past decades,1
+regarding the former in the past few years we have seen the introduction of quite a number of new products with floating rate and mixed fixedfloating rate characteristics in numerous eu countries the greater use of second mortgages and foreign currencylinked mortgages,1
+this includes sovereignty over monetary and exchange rate policies as i have already mentioned but the framework for microeconomic policies has now to a large extent also been centralised in the area of single market competition and trade policies,1
+so taken together structural reforms promote a longterm economic environment which is characterised by high productivity gains and low levels of inflation thus making a significant contribution to a successful stabilityoriented monetary policy,1
+the emerging markets have therefore become one of the main engines of world growth with a projected contribution of over a half this year,1
+naturally the enlargement of the eu has also been surrounded by a great deal of business interest,1
+we know from economic theory that more integrated and efficient financial markets can help raise productivity foster innovation and thus enhance economic growth,1
+an inertia in adopting new technology finland has benefited from an early focus on itinvestments and an open attitude towards the widespread use of modern it,1
+domestic demand has now replaced foreign demand as the main driver of growth,1
+within the mediterranean region labour and product markets have become more flexible the financial sector is now on a more solid footing and the economy has become more businessfriendly,1
+public spending growth has systematically exceeded nominal gdp growth also in portugal about double the average for the area,1
+international trade results in a more efficient use of production factors and in specialisation where comparative advantage exists thereby raising productivity growth,1
+at the same time productivity growth in the united states increased strongly while it remained relatively strong in the nordic eu member states,1
+in addition retail payment systems and instruments are significant contributors to the effectiveness of the financial system in particular to consumer confidence and the functioning of commerce,1
+this together with greater macroeconomic stability in the region has contributed to a decrease in the cost of capital supporting investment growth and ultimately economic growth and the catchingup process,1
+ecb research has long shown that stock markets are more effective than banks in supporting the decarbonisation of the economy,1
+economic integration in europe has also provided new opportunities for investment with a noticeable increase in capital flows in recent years,1
+financial deepening in the region has been extremely rapid,1
+such an increased interest should also stem from the enhanced comparability of prices of banking services throughout the euro area,1
+the ecb has played a leading role in this general trend towards greater transparency and openness,1
+4 more importantly the process of increasing financial market integration has been accompanied by a diversification of investment instruments across emerging market economies that is expected to support a more efficient allocation of capital,1
+the role of the european banking sector  the introduction of the euro will also underpin the reshaping of the european banking sector,1
+a more consolidated sector is likely to help overall profitability and boost resilience,1
+this has already become apparent in the area of financial integration here increased integration has been brought about by market developments as well as policy initiatives in particular the european commissions goal to create a truly integrated european financial market by 2005,1
+in particular growth accelerates by approximately 08 percentage point in countries which have adopted measures to enhance their integration into global financial markets,1
+we have created an integrated money market the bond market has made considerable progress towards integration corporate finance is more and more an international market a bigger role for equity financing is emerging,1
+indeed a new approach which emphasises the indirect effects of financial globalisation growth by promoting the development of the financial sector by strengthening competition and by enhancing market discipline on macroeconomic policies suggests that the total impact on growth of financial globalisation through these indirect effects can be significant,1
+the pace of global economic activity is becoming more balanced across the main economic regions,1
+by raising potential growth they can increase future income and wealth leading firms to bring forward investment and households to bring forward consumption,1
+human capital accumulation is typically seen as being at the core of economic growth,1
+indeed financial integration and modernisation would also speed up the convergence process of eastern europe through improved capital allocation and increased investments,1
+all in all the growth in the economic weight of emerging economies and nations and the rise in their cultural importance are very much synchronised,1
+furthermore the participation of european firms in global value chains is substantial even excluding intraeuro area trade foreign value added as a percentage of gross exports amounts to as much as a fifth of gross exports,1
+in terms of cumulated gdp per capita these countries have since 1999 grown much faster than the euro area average,1
+as its economic importance has grown china has taken on a larger role in global institutions,1
+the drive for increased efficiency saw global value chains blossoming alongside a rising tide of trade with production becoming increasingly unbundled across borders,1
+first research shows that openness to trade is a key factor in enabling faster technology diffusion,1
+for these countries investment is also more responsive to technical innovation,1
+there is increasing cooperation and competition among service providers pointing towards the integration of the securities infrastructure in europe ,1
+27  the ecb has been complementing these efforts by upgrading its payment system infrastructure which contributes to market integration and in turn to the depth and liquidity of euro area securities markets,1
+in addition enlargement has enhanced the scope for economies of scale as the extension of the internal market increased the size of the market available to suppliers,1
+the outlook for us corporate sector has stabilised since may 2009 as quarteronquarter profit growth has turned positive in the first half of 2009,1
+over the past five years we have in particular witnessed increasing financial flows from emerging market economies to industrial countries,1
+taken together the prospects for a strengthening of domestic demand growth appear to be good,1
+in particular there have been significant purchases by these countries of paper issued by us governmentsponsored enterprises which play a key role in us housing markets,1
+the epc is well positioned to continue contributing to the work of the sepa council representing the european banking sector for retail payments,1
+both inward and outward foreign investment from other euro area countries has risen in almost all countries over the past 5 years,1
+overall this had led to several countries improving their positions in global rankings of structural policies which should now put them in a stronger position to reap the microeconomic benefits of monetary union,1
+during the past few years  as has been rather obvious  these changes have included the discussion about a new economy and driven by the interrelated processes of financial liberalisation and financial globalisation the growing importance of financial markets,1
+it is generally accepted that financial integration fosters financial development which in turn creates potential for higher economic growth,1
+and such enterprises play an important role in europes economy 997 of all european enterprises fall into this category,1
+against this background of such allencompassing phenomena the adoption of the euro and the deepening of eu integration seem to have helped to make euro area countries fitter for globalisation,1
+the ecbs directorate general statistics has made an effort to contribute to the development of european economic and financial statistics,1
+this swift adaptation to the reality of the single currency was helped by the successful launch and operation of the target payment system which has facilitated crossborder transactions between financial institutions across the euro area,1
+deeper integration broadens the range of financing sources and investment opportunities and it creates economies of scale,1
+annual real gdp growth in the region has been above 4 since 2001 and catching up in real incomes is taking place,1
+banks intermediation capacity is strengthening via the incipient improvement in their asset quality and increased profitability,1
+here the key aspects relate to the wholesale payments infrastructure target euro i and eaf which is already very strongly unified,1
+another important development in euro area financial markets during the last five years has been the rapid growth of new market segments,1
+this restructuring process in both the financial sector and the real economies is well advanced and a new phase of financial and economic development is now under way in all accession countries,1
+along the way stabilityoriented policies have also directly improved the wellbeing of households inter alia by supporting the purchasing power of their income and savings,1
+in the economic sphere structural change  including financial deregulation market liberalisation and greater openness  has contributed to increased efficiency,1
+so overall there is growing evidence that broadbased economic growth is beginning to generate positive pricing dynamics,1
+the euro has also led to a marked increase in crossborder security investments within the euro area,1
+with the recent launch of target instant payment settlement tips the eurosystem has laid the groundwork for innovative customerfriendly retail payment solutions that benefit everyone in europe,1
+global economic activity indicators suggest robust growth at the start of 2017 which should further support business investment in the euro area as export demand picks up,1
+first capital markets are particularly wellsuited to direct financing towards futureoriented sectors like green and digital,1
+i as to the first feature economic integration has been reflected in a marked increase in intraeuro area trade in goods and services,1
+at the same time improving financing conditions triggered strong crossborder capital inflows into a number of countries and a surge in domestic demand and inflation,1
+in some segments the eurodenominated markets have even achieved a degree of sophistication and development that now places them among the topranking global markets,1
+globalisation has certainly been a major driver of the strong growth of extraeuro area imports with outsourcing to lowcost countries and the internationalisation of production playing an important role,1
+trade and investment performance have contributed to gdp per capita growth with gdp per capita growth standing on average at 184 between 1998 and 2006 that is the eight yearperiod since the start of stage three of emu,1
+the available conjunctural indicators suggest that the recovery of real economic activity in the euro area has continued into 2004 and it can be expected that this gradual recovery will continue and will strengthen over time,1
+improvements in productivity and labour utilisation growth which help to increase the euro areas potential growth also have implications for the conduct of monetary policy for they can help to raise the speed limit of the euro area economy meaning that the economy can attain a faster rate of sustainable growth that is compatible with price stability,1
+and the reforms do pay off the remarkable labour productivity growth performance in network industries in europe over the last ten years provides a perfect example of the positive impact on labour productivity growth of easing regulations and fostering competition,1
+but in addition to the general economic benefits of financial integration that i have mentioned fostering financial integration is of particular importance for the ecbs tasks,1
+while the united kingdom undoubtedly hosts one of the worlds largest financial centres i expect cmu to allow financial centres to compete more directly with each other benefiting from their comparative advantages,1
+often manufacturing activity in the region is well integrated into the production structures of western european economies which have been attracted by the comparatively low costs in south eastern europe and a relative geographic proximity,1
+the single currency has enhanced our ability to take advantage of the single market and trade and capital ties between euro area countries have grown significantly,1
+the bulk of its bilateral consultation reports are now published and the fund has pushed for greater dissemination of key economic and financial data,1
+indeed in parallel to the significant steps taken in europe in the past decade towards exposing network industries such as the telecommunications sector to more competition labour productivity growth tended to accelerate significantly and to perform better in these industries both in comparison with other sectors in europe and with the united states,1
+our measures have worked through the financial system and are benefiting the real economy at large by ensuring very favourable financing conditions,1
+this work is particularly relevant for the ongoing banking and financial system integration that is taking place in the eu and should encourage us to go further in the integration of the banking sector,1
+second when the process started in europe the countries involved were rather homogeneous with broadly similar per capita income levels and industrial developments which is still deemed to be an important factor in facilitating regional integration,1
+total factor productivity has been the main driver of growth and convergence across the region,1
+second i will briefly review the increasing economic and financial relations between europe and emerging asia especially china the contribution of these relations to growth in both regions and their impact on the ongoing transformation of the european economy,1
+and with their increasing market share these companies could help diversify the sources of credit to the economy thus fostering investment and growth,1
+the ecbs analysis conveyed through our annual report financial integration in europe demonstrates that financial integration has advanced significantly since the introduction of the euro at the level of financial markets market infrastructures and financial institutions,1
+more broadly global activity and trade gathered positive momentum in the second half of 2016,1
+the fact that confidence indicators are currently at or close to record highs is fuelling expectations that domestic demand growth will also be strong this year and next,1
+economic activity in the euro area is also expected to benefit from a gradual strengthening of demand for its exports,1
+these statistics are expected to play an important role in fostering the integration of the european shortterm securities markets through greater market transparency,1
+more generally the signalling effect of the app has been visible in solidifying business and consumer confidence underpinning a broadening economic recovery,1
+nonbank financial intermediaries in the euro area have grown rapidly over recent years which is a welcome development,1
+on the external side growth in the global economy is much stronger than was previously expected,1
+access to finance and financial development policy have primarily been geared towards achieving higher levels of integration,1
+improving skills provides a way to do this because on the one hand it increases economic efficiency it creates new job opportunities and on the other hand it makes the economy more equitable by allowing as many people as possible to seize those opportunities,1
+these developments increase households real disposable income which boosts the spending of established employees who are confident about their earnings prospects as well as new employees,1
+the resumption in global growth and trade rebounding oil prices the recovery of global equity markets and the impact of fiscal stimulus are increasingly being felt,1
+furthermore we have also witnessed a rapid improvement in the position of the euro area in terms of adopting new technologies over the past few years,1
+linked to this deeper and broader markets have enhanced the efficiency of european financial markets,1
+our ongoing engagement with these stakeholders reveals that many of them expect dlt to experience a significant uptake in the financial industry,1
+as to the former we see that the process of globalisation has gradually extended international policy cooperation over all these three central banking functions,1
+for example the development since the 1970s towards financial market liberalisation and integration has clearly been underpinned by the development of information technology,1
+over the past few years the euro area has witnessed a gradual recovery in economic activity that has now led to real gdp growth rates that are close to our present estimates of the potential growth rate of the euro area economy,1
+all in all the growth in the economic weight of emerging market countries and the rise in their cultural importance are very much developing in a synchronised manner,1
+the main motor of the recovery has been the domestic economy driven by a strengthening in domestic demand and improving labour markets,1
+in particular increased clarity and transparency about banks balance sheets together with a better capitalised banking sector will create a more supportive lending environment,1
+as for capital flows the euro has boosted foreign direct investment  particularly crossborder mergers and acquisitions in manufacturing  and portfolio flows across euro area countries,1
+real output per capita has grown at a similar pace in the euro area than in the united states which  in terms of economic dynamism  remains the benchmark for the advanced countries,1
+all these effects would both facilitate adjustments between economies inside the euro area and contribute to an efficient functioning of the euro area as a whole in the context of increased global trade and global financial integration,1
+in fact the power of transmission through the banking system has been rising through the life of our programme,1
+sepa with its harmonisation and restructuring efforts is a crucial factor in opening up the different national retail payments markets allowing euro areawide competition and fostering innovation in the euro area,1
+global growth has remained robust and some rebalancing of activity among the main economic areas has occurred,1
+cyclical developments in global it demand are likely to influence domestic business conditions in the region in a rather symmetrical manner which in turn would call for improved regional cooperation,1
+over the past two decades the world economy has become increasingly integrated,1
+in addition larger integration into the international financial system may contribute to the efficient functioning of the entire economy by providing additional financing at a reasonable cost to domestic agents by facilitating the transfer of technology from abroad and by stimulating the performance of the domestic financial sector,1
+first by fostering higher productivity growth and labour utilisation a higher level of education raises potential growth and thus the speed limit of the economy meaning that the economy can attain a faster rate of sustainable growth that is compatible with price stability,1
+greater market flexibility and higher productivity growth will facilitate other things equal the conduct of policies to support growth consistent with the maintenance of price stability,1
+in an economic context globalisation is associated with the growing economic linkages among countries through trade in goods and services free crossborder capital flows and more rapid and widespread diffusion of technology,1
+it appears that the structural characteristics of the bestperforming industrialised economies namely more flexible labour markets greater competition in product markets and lower barriers to entry for new firms have been more receptive to the opportunities provided by new technologies,1
+the expectation of further export growth in the period ahead finds support in the recently improved assessment of export order books by manufacturing firms,1
+within the single market the united kingdom has also been a major hub for wholesale banking activities,1
+this process is expected to gain momentum with a sustained strengthening of real gdp growth in the second half of this year and next year,1
+in particular nonresidential private investment is expected to provide support to economic activity as capacity utilisation remains high and profitability has been sustained in the nonfinancial corporate sector,1
+against this background the expansion of economic activity in the euro area has strengthened and broadened since the second quarter of 2005 reflecting in particular stronger investment,1
+globalisation improves the incentives for national politicians to implement good policies such as structural reforms which increase the flexibility of the economy,1
+as to economic relations we have seen a surge in twoway trade volumes and investment flows in particular because of china,1
+we are convinced that increasing the efficiency of our market infrastructure will ultimately support the efficiency of the financial services community,1
+the remarkable pace of growth in the asiapacific region is good news for all of us,1
+at this stage of my presentation i would like to stress that the euro area countries will be the more equipped for the increased globalised economy the more they are able to exploit the benefits of emu and the eu internal market,1
+regarding the latter much progress has been achieved in integrating eu goods markets largely driven by the completion of the single market,1
+moreover housing construction is picking up throughout the region reflecting buoyant housing demand,1
+the development of this market has been strengthened by the eurosystems operational framework of open market operations which is mainly based on reverse transactions and the implementation of the new realtime gross settlement system target for participating countries,1
+the euro area experienced a strengthening of economic growth in 1997 to 25 and a further acceleration has been anticipated for this year,1
+efforts to complete the single market for example would incentivise more firms to invest and grow as they have a larger market to serve and exploit economies of scale,1
+15 a 10 increase in total factor productivity tfp growth of western eu firms at the value chain frontier contributed to 48 tfp growth for cee firms participating in value chains which in turn fostered wage convergence in these economies,1
+finally financial integration promotes the development of the financial sector  including structural reforms such as sepa  thereby raising the potential for stronger economic growth,1
+this has also helped to ease financial conditions in many emerging market economies where capital flows have returned amid an improved global risk appetite,1
+on balance asian countries have been a model of integration in the global economy among emerging market economies with large gross flows on both the current and the capital account,1
+in the long run further improvements in the efficiency of euro area financial markets will result in a better allocation of financial resources which in turn will contribute to a general increase in economic welfare,1
+looking ahead both domestic and foreign demand are expected to support real gdp growth in 2008,1
+overall the solid bridges that link the ecb with universities and research centres play a key role in the continuous upgrading of our intellectual capabilities and in the deepening of our knowledge of relevant subjects,1
+and in scaling up the volume of our measures we have also broadened the scope of transmission,1
+at the same time research shows that having a greater share of intangible assets is related to a greater ability to create and absorb new technology,1
+this situation has also arisen because the euro has become the currency of an economic area which roughly equals the united states in terms of economic size and external trade and which has the worlds second largest capital markets,1
+the last decades in particular have witnessed a tightening of the trade and financial linkages and the bilateral relationships between the united states and the euro area have been reinforced,1
+this concept of real convergence that might be termed institutional or structural convergence will play a role in determining the overall economic performance of a member state,1
+in addition the education pertaining to the organisation management and governance of firms also contributed to financial development and enhanced productive efficiency,1
+the increased global integration has strengthened the natural tendency towards concentrated provision of infrastructural services a tendency that is further accentuated in the context of the european single market,1
+in europe this led to strong growth of some important universal banks,1
+the immense importance of this issue and the great opportunities provided by investment in research are also increasingly appreciated by european governments and firms,1
+it can also offer more possibilities for financial institutions to manage and diversify their relevant risks and realise economies of scale which leads to greater efficiency of the financial system,1
+in the financial sectors over the same periods hourly labour productivity growth has also accelerated in the us and has been roughly 4 times higher than the growth rate observed in the euro area over the period 19962004,1
+overall the monetary transmission mechanism benefits from integrated and welldeveloped financial systems in the sense that it leads to a more similar and in part faster passthrough of market rates to bank rates,1
+in turn the development of these firms supports the expansion of employment investment and trade,1
+there is unanimous agreement that the integration of the large value payment systems has been instrumental to the integration of money markets and wholesale banking activities in europe,1
+growth has been sustained confidence in the currencies has strengthened the financial sector has deepened and new investment has been attracted,1
+thanks to instant payments european market players can now become leaders in innovation based on european standards,1
+to the extent that countries around the world are signing up to these standards the conditions for growth in a financially stable environment are being reinforced globally,1
+furthermore we learned that the financial sector a principal user of information and communications technologies was the main source of the greater dynamism in the united states,1
+these findings are particularly relevant for the banking and financial system integration that is taking place in the eu and should encourage us to make further progress in the modernisation of the banking sector,1
+the development and the integration of capital markets in europe have been fostered for some time now by financial liberalisation globalisation and technological innovation,1
+the ever closer integration into the global economy of a rising number of countries has offered new possibilities to finance investment and consumption and to diversify and share risks globally,1
+turning to more recent developments in economic activity in the euro area over the last few quarters more positive fundamentals have gradually come to influence both economic growth developments and market sentiment,1
+overall esepa online services would come to the great benefit of corporate customers and consumers,1
+this indicates that european companies increasingly perceive russia as a large market for eu goods and services made increasingly attractive by the strong growth of the last five years,1
+similar to what we have observed at the euro area level the economic expansion in the netherlands has also strengthened,1
+the financial services action plan consists of a set of 42 measures designed to strengthen the european financial industry by encouraging free market access competition and the creation of more efficient markets,1
+the extension and deepening of the eus internal market clearly remains a priority as regards further financial market integration and the implementation of the services directive,1
+since the introduction of the single currency financial integration at the level of institutions markets and market infrastructures has been making significant progress,1
+as the recovery unfolds euro area activity should be supported not only by exports but also by stronger domestic demand,1
+in many countries the operations of foreign affiliates are now extremely important for domestic growth with rising sales value added employment and exports,1
+the close integration of largevalue payment systems has been instrumental in achieving and sustaining money market integration,1
+this is mainly attributable to strengthened trade and financial integration including significant foreign direct investment flows and the availability of eu funds,1
+generally crossborder ma activity is one way to increase competition in the banking sector which tends to contribute positively to economic growth,1
+financial integration is a key factor in the development and modernisation of the financial system which in turn can lead to greater productivity and competitiveness a more efficient allocation of capital and the potential for greater and more sustainable noninflationary growth,1
+world trade had increased to unprecedented levels during that period and international economic and financial integration had deepened considerably,1
+while the origination of bank loans remains to a large extent level financial globalisation has made the related securities available to investors worldwide,1
+globalisation is expected to increase competition in most areas of financial services and it may also be able to realise economies of scale and scope,1
+the trade integration of the emerging countries should a priori have led to large changes through time in comparative advantages and thus specialisation across countries in recent years,1
+the ensuing inflow of foreign direct investment has boosted the economy and promoted rapid real gdp growth,1
+moreover euro area activity should be supported by relatively resilient world growth benefiting mainly from sustained growth in emerging economies,1
+with an increase in the volumes of transaction firms realise economies of scale and make full use of modern technology,1
+together with improving financial and nonfinancial sector balance sheets this has strengthened credit dynamics and supported domestic demand,1
+in using the euro as an issuance currency financial institutions and corporations mainly from mature economies most notably the united states and the united kingdom have taken advantage of the greater size and liquidity provided by the increasingly integrated eurodenominated bond markets,1
+as the world economy recovered after the asian crisis the ensuing positive impulses for euro area exports have reinforced the strength of domestic demand,1
+the emergence of key global players in banking has also led to increased internalisation of payment flows in correspondent banks,1
+more generally the evidence from crosscountry and countryspecific studies in both developed and emerging economies shows that deregulation privatisation and financial development result in an acceleration of growth and a sustained increase in total factor productivity eg,1
+imf conditionality in the form of adjustment programmes should in conjunction with imf financing be instrumental in improving the external position of member countries and quickly restoring market confidence,1
+the network nature of the economic behaviour in combination with the present ability to communicate instantaneously in the new economy environment make the reactions stronger and more rapid on a global scale,1
+as already mentioned above emu is set to propel the eu economy into a role of systemic importance,1
+the competitive advantage of flexible economies is also enhanced substantially in a time of accelerated globalization,1
+international financial integration has not only created better economic opportunities,1
+this promotes access to new funding opportunities for companies encourages investment and thus contributes to higher economic growth,1
+if we define globalisation as the increasing interdependence of economies via crossborder transactions in goods services natural resources capital and labour it appears that the process has greatly accelerated in recent years,1
+we are bound to catch up progressively with the levels of labour productivity growth reached by the most successful industrial economies including the united states since the mid 1990s,1
+combined these elements have greatly boosted investment economic growth and employment in the euro area,1
+if they persist over time they will support longterm growth as the expansion of the banks deposit base will also be conducive to underpinning financial intermediation,1
+in particular the share of euro area total value added and employment accounted for by the services sector has significantly risen since the 1980s,1
+united states  turning to the united states labour product and capital markets have reached a high degree of flexibility,1
+in the euro area economic growth has progressively strengthened significantly,1
+highly developed wellfunctioning and regulated financial sectors are crucial for allocating capital efficiently and thus for the longterm growth prospects of an economy,1
+broadbased convergent recovery over recent quarters the economic recovery has also become more broadbased across euro area countries and the different sectors of the economy,1
+the international role of the euro is determined by the decisions of market participants in the context of increasing market integration and liberalisation,1
+this would suggest that the stimulating effect produced by lower interest rates on consumption and investment might be compensated by other real effects directly or indirectly linked to global developments which might also explain the increasing preference for liquidity by economic agents in our economies,1
+advances in information and communication technology as well as a growing political consensus concerning the benefits of globalisation have contributed to the accelerating pace of integration of markets worldwide,1
+the increasing breadth and sophistication of financial markets in turn have been conducive to economic growth for the reasons i outlined above,1
+finally with lower barriers to flows of information and crossborder production schemes globalisation encourages the transfer of new technologies between countries firms and sectors,1
+and previously national financial markets have become increasingly integrated,1
+they may in fact favour greater growth by facilitating the financing of higher consumption and investment in particular through foreign capital,1
+for sure big data have also provided plenty of opportunities to deepen our understanding of behavioural economics and how psychology can drive macroeconomic developments,1
+clearly investment in innovation has benefited from the emergence of larger and more liquid securities markets which offer largerscale enterprises access to a wider range of more competitive financing options,1
+indeed crossborder interbank loans and crossborder holdings of securities have in relative terms experienced substantial growth,1
+much faster data transfer and the increased transparency of information in a knowledgebased society could enhance efficiency,1
+this is exemplified by the fact that together with the brightening picture on the external side of the economy there has been a strong rebound in industrial confidence,1
+the higher the demand for official statistics for a global economy the more important international statistical standards become,1
+it also holds true because the euro has become the currency of an economic area which roughly equals the united states in terms of economic size and external trade and which has the worlds second largest capital market,1
+during this period the international community has learnt critical lessons and has launched profound adjustments to what has been termed the international financial architecture that is the network of institutions and fora with varying degrees of coordination at the global or sometimes regional level,1
+at the same time globalisation has opened up new markets for banks particularly in trading asset management and investment banking activities,1
+increased investment in computers software peripheral equipment network infrastructure and other information and communication technologies are generally regarded as the most salient driving force behind what has been perceived as a new pattern of growth,1
+in general welldeveloped financial markets enhance the diversification of risk and enable an efficient allocation of savings thus contributing to economic growth,1
+banking union increases the resilience of the banking sector facilitates sector consolidation and enhances the cross border credit market expanding its financing capabilities and reducing intermediation costs,1
+as a result confidence in the euro area banking sector has improved and since the first quarter of last year banks stock prices have risen at almost double the rate of the market average growth,1
+the evidence strongly suggests that this has supported the development of the international role of the euro,1
+for instance there is evidence that hong kong is striving to become a regional financial centre offering payment facilities in various currencies including the euro in its time zone,1
+given the important implications of crossborder banking for financial integration economic growth and financial stability the ecb is closely following this development,1
+productivity growth is therefore the key factor in longterm economic growth,1
+in shanghai i have seen chinas largest centre for business and finance one of the worlds most active ports a city which is developing at an impressive speed and is experiencing urban regeneration on a massive scale a symbol in many ways of the unprecedented economic transformation your country is going through,1
+by the end of last year euro area exporters had expanded their business with virtually all of our main trading partners,1
+its wider objective is to enhance the stability of the russian banking system through capacitybuilding at the bank of russia,1
+in the first place the very rapid progress in science and technology in particular information and communication technologies  leading to significant productivity gains which coincide with globalisation and moreover are one of its underlying causes,1
+for both banks and nonbanks this translates into considerable opportunities for growth in terms of both traditional and new banking services,1
+as an even greater number of companies and countries have become more involved in foreign trade of goods and services world trade has been growing faster than global economic output thereby leading to a higher degree of trade openness worldwide which increased from about 45 in 1998 to more than 55 in 2005,1
+in particular financial globalisation has advanced rapidly due to a surge of capital flows between industrialised countries and between industrialised and developing countries,1
+the euro is estimated to have accounted for an increase in intraeuropean trade volumes of between 5 and 20,1
+moreover the sustained growth of credit should have been supported by the ongoing economic recovery in the euro area,1
+following the introduction of the euro and the general pressures of globalisation and increased efficiency these efforts appear to have been reinforced by all participants national authorities community institutions market associations private financial institutions as well as private and institutional service providers such as stock exchanges clearing houses and securities settlement systems,1
+a second type of activity is our provision of central banking services that can also be conducive to fostering financial integration,1
+today many asian economies are benefiting from global economic integration,1
+it arguably speeds up the catchup process of the south towards the living standards of the north owing to an easier flow of capital and technology from the north to the south,1
+private banking union the private banking union in the us is created by its integrated financial market which includes both the banking sector and capital markets,1
+third the banking union and the ssm in particular aims to protect borrowers by restoring trust in the soundness of the banking sector thereby increasing its capacity to lend to the real economy,1
+innovation and technological diffusion have an important role to play in this context and they are an important plank of the lisbon strategy which inter alia pursues the objective of making europe a knowledgebased economy,1
+a rapid integration is also taking place in the euro area equity markets,1
+in such a flexible economic environment policy actions will be more efficient and feed through the economy more quickly,1
+moreover more integrated financial markets give rise to greater competition resulting in more favourable financing conditions for consumers and firms,1
+between 1995 and 2010 the pace of world trade growth expanded twice as fast as that of world gdp growth,1
+emerging countries citizens have reaped the benefits of such rapid development with higher standards of living,1
+on the domestic side investment should normally benefit from the positive global environment the very favourable financing conditions in the euro area and the improvements in corporate efficiency and there is scope in the euro area as a whole for a strengthening of private consumption,1
+in particular in light of the remarkable growth of chinas economy and recent policy measures adopted by its authorities the international use of the renminbi has gained momentum,1
+three words characterise the international role of our currency growing euroarea driven and regional,1
+this event should further enhance competition in the euro area financial markets the international role of the euro and the acceleration in the consolidation process of our formerly segmented european national economic spaces,1
+the impact of education on growth may be related to innovation as well as the adoption of new technologies,1
+looking forward we expect the euro area economy to further benefit from the ongoing recovery in the world economy,1
+also the globalisation of finance comes primarily from the combination of data processing and telecommunications,1
+the ongoing recovery has strengthened and broadened and is expected to remain sustained,1
+training has been shown to have a significant positive effect on firmlevel value added growth productivity and innovation,1
+for the euro area countries the change in their economic environment has been particularly marked over the last decade while being increasingly integrated into the global economy they are part of the european union that witnessed a substantial enlargement in recent years,1
+second it is generally accepted that financial integration is a key factor in the development and modernisation of the financial system which in turn leads to a more efficient allocation of capital and an increased potential for economic growth,1
+moreover a successful implementation of the investment and reform plans under the next generation eu programme would accelerate the energy and green transitions enhancing longterm growth and resilience,1
+gross foreign direct investment fdi transactions of euro area countries with financial centres have been so large that these have driven aggregate euro area developments,1
+this database together with others developed under the leadership of the groningen growth and development centre provides extremely valuable information for assessing structural trends in real output and labour productivity growth,1
+research shows that public investment raises the productivity of the physical and human capital stock and may also encourage new private investment,1
+with the establishment of the single market in particular the pace and reach of integration accelerated markedly,1
+the outlook for euro area domestic demand in particular has become more favourable,1
+and in the light of the factors i have just listed there may be good reasons to expect that scarcity will materialise first and foremost in those market segments with a higher duration potentially helping to maximise the economic impact of our operations as outlined in the section on transmission mechanism,1
+progress in eu financial integration since the introduction of the euro and the implementation of the financial services action plan fsap have generally improved financing conditions for european firms with substantial benefits expected for europes growth performance,1
+this more even credit pricing across countries and firms has in turn been crucial to the broadening of the economic and employment recovery not least because smes represent 60 of euro area value added and employ 70 of the labour force,1
+this mainly reflects the expansion of the provision of liquidity to the banking system which plays a crucial role in the funding of the euro area economy,1
+this is the result of the ongoing liberalisation of financial markets and institutions in the major industrial countries during the past two decades and has led to an enormous increase in international capital flows,1
+accordingly this sector has become an important source of funding for the real economy with its share of overall credit to nonfinancial corporations growing from about 15 to 30,1
+this is linked to demographic developments and to expectations of continued productivity growth,1
+this formed the basis for frankfurtrhinemain to boost its innovation potential by integrating universities more strongly in particular for applied research,1
+while growth has been mainly supported by private consumption in recent quarters there are encouraging signs that private investment is picking up as well,1
+over the last decade latin america has made a great deal of progress toward sound economic policies and the regions growth potential is vast in terms of human and natural resources,1
+the public sector support for demand and the stabilisation of the banking sector contributed to the avoidance of a depression and launched an incipient economic recovery that was gaining strength in the first quarter of the year,1
+easier access to global financial markets for individuals and corporations will lead to a more efficient allocation of capital which in turn will promote economic growth and prosperity,1
+financial integration enhances the efficiency of economic mechanisms strengthens competition and raises the potential for stronger economic growth,1
+overall we can certainly conclude that the euro area and china have become key economic partners,1
+reviving the supply of credit to these firms has also helped lay the ground for an economywide recovery in investment activity and employment,1
+in the eu context the financial structure has seen a remarkable transformation and elements such as the provision of risk capital and the strengthening of marketbased elements have become more important in recent years,1
+looking ahead growth in the united states is expected to accelerate on the back of solid growth in investment and consumption and significant fiscal stimulus,1
+these markets have become more integrated and some sectors such as the network industries are being liberalised,1
+in the banking sector for example the strong presence of foreign banks has already had significant implications accelerating concentration increasing competition and enhancing efficiency,1
+after the treaty of rome the development of the european project contributed to economic growth in the member states for many years the progressive abolition of customs tariffs favoured specialisation made it possible to reap the benefits of economies of scale and stimulated efficiency and competition with positive effects on employment and welfare,1
+in fact euro area banks and financial institutions have been the most important investors in the respective banking sectors contributing to financial development in the region,1
+as trade integration and foreign direct investment flows into these countries continue there is reason to believe that the level of synchronisation will increase,1
+from the external side global demand has seen a protracted expansion that has consistently supported euro area exports,1
+second the high trade integration of the new member states with the euro area increases the benefits of fixing their exchange rates to the euro and improves the synchronisation of their business cycles with that of the euro area,1
+moreover the free movement of people ensures that anyone can seek work where economic activity is concentrated as a result of agglomeration effects,1
+strategy standardisation can be explained as the outcome of the growing interaction between monetary policies and arrangements in different economic areas which is in turn related to the trend towards economic globalisation,1
+one of the main features of globalisation has been the entrance of new players into world markets,1
+the integration process is a dynamic driving force both behind private sector and in the political decisionmaking,1
+there are approximately 22000 financial entities in the eu8 and digitalisation has deepened the linkages between them and with thirdparty infrastructure and service providers,1
+the transmission of the improvement in banks funding conditions to lower bank lending rates has been further empowered by an increase in lender competition for good credit spurred by our measures,1
+over the past 15 years international trade and foreign direct investment fdi flows have expanded rapidly,1
+productivity growth can also be boosted by more and better education and training,1
+across the region the domestic demand booms were mainly financed by euro area banks through funding of their local subsidiaries and direct crossborder lending,1
+these different growth rates imply that over the last two decades real gdp has doubled whereas the volume of world trade has more than tripled,1
+apart from this ongoing integration and globalisation world financial markets have also recently experienced increased securitisation,1
+i have already argued that these structural changes will benefit europe s citizens  price stability will allow markets to work more efficiently thereby raising growth and improving employment prospects,1
+this should also reinforce the consolidation dynamics i just mentioned it is natural for the establishment of the ssm and the comprehensive assessment of banks balancesheets to a period of general marketdriven restructuring in the european banking sector,1
+over the years the activities of the chamber and its members have greatly contributed to the development of economic and financial ties between germany and greece,1
+cls was the infrastructure envisaged by the market and the central banking community has supported its development,1
+ecb research shows that technology transfers have contributed to strong productivity spillovers within european value chains,1
+rather the extent of the developments that have already taken place must be interpreted as an early indication of the considerable contribution of the euro to the european economy and financial markets,1
+as regards economic efficiency increased specialisation offers sizeable gains in terms of innovation productivity and higher potential growth rates,1
+as the ecbs most recent financial integration in europe report indicated stable highly integrated and adequately supervised markets contribute to a more efficient allocation of resources over time and across jurisdictions allow intertemporal smoothing of consumption and increase the supply of funds for profitable investment opportunities,1
+second also reforms on euro area goods and services markets have a substantial role to play in increasing employment and productivity growth,1
+the rapid advances in information technologies and the globalisation of our economies have led to a significant transformation of the economic landscape in recent years,1
+establishing efficient and wellfunctioning product and services markets can boost productivity trends by enhancing the incentive to invest and innovate,1
+for instance size and liquidity effects lead to the emergence of new financial market segments denominated in the international currency,1
+can we estimate quantitatively the effects of further integration and enhanced financial development on economic growth,1
+to sum up the introduction of the euro has led to a perceptible shift in euro area and eu financial markets greater depth liquidity and integration should improve their efficiency and a more efficient allocation of capital should mean improved financing opportunities for both sovereign and corporate borrowers,1
+on the demand side in an environment of low interest rates consumers and firms anticipating future growth frontloaded consumption and investment like good intertemporal optimizers,1
+for instance decentralised wage setting has led to broadly appropriate wage development in the recent past and contributed to employment growth,1
+this increased competition along with changes in technology will fuel the need to innovate new payment products services and infrastructures providing major benefits to the wider economy,1
+as 50 of the crossborder trade of euro area countries is with other euro area countries small and mediumsized enterprises will benefit immensely from the harmonisation across national borders within the euro area,1
+the resilience of global economic growth which benefits from the robust economic activity in emerging market economies should support euro area exports,1
+1 reforms aimed at strengthening competition will not just encourage greater price flexibility but also higher investment as young firms are able to enter new markets and expand more quickly,1
+and their rising role means that today they share responsibility for global economic performance in half with the rest of the world,1
+for example insofar as financial innovation improves the availability of funds for business activities that might not have otherwise taken place it is likely to have a positive impact on longerterm economic growth prospects,1
+this development of euro area capital markets is important as financial systems with larger overall capital markets generally allow a faster reallocation of capital and provide easier financing for real investment thus fostering productivity,1
+in addition the eurosystem began successfully operating the euro area payment system target which ensures the smooth settlement of crossborder payments in the euro area and as such has contributed substantially to the integration of the euro money market,1
+going forward we should continue to build on collaboration between authorities and the industry with the aim of enhancing the integration of posttrading infrastructures fostering innovation and efficiency and ultimately benefiting end users and the real economy,1
+labour productivity growth continued to rise in the second quarter of the year to 14 in annual terms on account of growing employment and activity in the last few quarters particularly in the industrial sector,1
+the rise of the emerging economies will also be reflected in the reforms of the international financial institutions,1
+this has been instrumental to the integration of money markets and wholesale banking activities in europe,1
+the labour and welfare reforms contributed significantly to positive economic developments in germany over past years,1
+this could take the form of continued consolidation at the national level and of enhanced crossborder market integration aiming to reap the full benefits of economies of scale and scope,1
+plans submitted to the ecb indicate that this can be expected to result in a substantial relocation of activity to the euro area in the order of over 1 trillion in bank assets and that at least in the short term activity will move to a number of euro area countries possibly resulting in the development of a multicentric european financial system,1
+the role we see for the euro area is to become a stronger and steady driving force for global growth by establishing a fully operational internal market and encouraging innovation in production and business practices as is also set out in the structural reform agenda that we refer to as the lisbon strategy,1
+nonbank financial intermediaries have grown rapidly over recent years in the euro area which is a welcome development,1
+on the external side the upturn of growth in the world economy appears to be more robust and broadly based than was anticipated earlier,1
+by creating optimal conditions for a sustainable and strong pace of economic activity price stability will ultimately spur employment growth and foster higher living standards,1
+this mainly relates to the strong performance of the us economy,1
+moreover net demand for all types of loans has increased and is expected to grow in the next quarter too supporting loan growth,1
+in addition as was shown yesterday there is some evidence of a possible positive relationship between competition in the retail banking sector and growth in financially developed systems,1
+all told we estimate that half of the extra gdp growth achieved during the current recovery has been attributable to our policy with a material contribution from oil prices as well,1
+in the same period nonbank finance has become an important source of funding for the real economy its share of credit to nonfinancial corporations has increased from about 15 to 30 chart 2,1
+as of today there is no doubt that the introduction of the euro has fostered the internationalisation of banking activities,1
+and the counterpart of debt  credit  facilitates the productive investment through which market economies grow over time in turn increasing transactions and demand for money,1
+financial integration will help to increase longterm economic growth and will have a strong bearing on the competitiveness of the european financial sector leading to innovation and modernisation,1
+the significant improvement in funding conditions for smes is especially encouraging as these companies provide twothirds of the total private sector employment in the euro area,1
+fourth the process of globalisation that we have experienced in recent decades has been driven by an increase in global trade following the integration of emerging market economies into the world economy and the liberalisation of financial markets,1
+financial innovation refers both to technological advances which facilitate access to information trading and means of payment and to the emergence of new financial instruments and services new forms of organisation and more developed and complete financial markets,1
+by adopting the new technologies which have been developed and tested in the united states over the past decade europes economy has the potential to achieve the kind of performance seen in the us new economy even more rapidly than was the case in the united states itself,1
+it increases the scope for efficiency gains through increased specialisation and better use of comparative advantages in the international production of goods and services,1
+banks taking part in our tltros saw a considerable increase in their credit growth with loans rising by over 400 billion in the year up to september,1
+indeed crossborder holdings of securities and interbank loans have in relative terms experienced substantial growth,1
+monetary policy can stimulate demand and investment and as this creates productive capacity a link is established with the supplyside and the longterm,1
+they have supported price stability in particular by buoying domestic demand which is now the supporting pillar of the ongoing recovery,1
+importantly domestic demand has firmed against the backdrop of improved private sector balance sheets which is the second key feature of the recovery,1
+as regards the efficient allocation of capital economic growth is spurred by the fact that in a more developed financial system the intermediaries are more effective in dealing with problems of asymmetric information so more funds will be allocated to more profitable projects and the productivity of the economy will increase,1
+creating a productivityenhancing environment for advanced countries in todays globalised economy productivity is increasingly linked to investment in knowledgebased capital and moving closer to the technological frontier especially in high valueadded sectors such as the digital economy,1
+the single pricing structure the harmonized set of cash settlement services and the single technical communication interface allow to exploit economies of scale and gains in efficiency that will spur even further integration in money and wholesale markets,1
+the finance and growth nexus    there is strong evidence that access to finance is conducive to economic growth,1
+in particular the advent of the euro is speeding up the process of integration and innovation in the euro area domestic financial market which may in turn influence its international use,1
+indeed in the first quarter of 2016 investment and consumption contributed almost equally to the strong gdp outturn,1
+the global economy is expected to continue to grow strongly and world trade is projected to accelerate further,1
+the euro area recovery has so far been mostly homegrown with monetary policy creating the conditions for a virtuous circle between rising income and spending in both the corporate and the household sector,1
+it is generally agreed that regional integration is beneficial to the parties involved as economic factors are more efficiently allocated through increased competition and specialisation,1
+3  second a more stable and predictable legal and regulatory environment improved investor security and contributed to a rapid inflow of foreign investment providing the economy with the necessary foreign capital knowhow and technology to increase its competitiveness,1
+the strong productivity performance of the us economy has been ultimately attributed to the development of new information and communication technologies ict in combination with the overall flexibility of the us economy,1
+however in the emerging knowledgebased society the interactions between price stability and economic prosperity become tighter,1
+indeed the globalisation of financial markets and institutions which was fostered by financial innovation and technological advances has played a key role in shaping the overall environment and influencing the processes that determine financial market efficiency and stability,1
+indeed since 1999 the russian federation has contributed substantially to global growth and has become a major holder of foreign exchange reserves,1
+this development was maybe even more pronounced in the euro area compared with other regions due to several factors including the introduction of the single currency further financial market integration through the use of credit derivatives and related financial instruments and an innovative financial industry,1
+indeed the economic motivation for the creation of the euro was closely intertwined with the broader project to develop close economic and financial ties among the member countries,1
+expectations of longterm growth in the euro area which drive the prospective return on investment and in turn investment decisions remain positive,1
+the current upswing in economic activity has been accompanied by a steady improvement in the euro area labour markets,1
+and this is notably reflected in important developments over recent years in the international financial architecture the network of institutions and fora which are involved in the governance of the world economy in macroeconomic and financial matters,1
+europes openness is also remarkable in international finance over the past decade the stock of outward and inward foreign direct investment has virtually doubled as a percentage of gdp,1
+in particular financial markets that are more integrated provide strong support for the effective transmission of the single monetary policy and the smooth operation of the underlying payment systems,1
+given the strong complementarity between public and private investment the funds from the recovery programme can also pave the way for private investment activities that are at the core of the large innovation effort required to master the green and digital transitions,1
+of course other noneurorelated factors such as enhanced international mobility of financial flows technological innovation and globalisation also explain the recent developments towards more integration and consolidation of the financial sector in the euro area,1
+and banks  you have developed and will form the basis of sepa,1
+in addition different from previous years also the euro area regained more dynamism thereby contributing to an urgently needed rebalancing in global economic growth,1
+in particular there are indications that the profitability of nonfinancial corporations has on average developed favourably in recent years driven also by lower corporate taxes moderate wage growth and rationalisation of the production process,1
+financial integration increases the potential for higher economic growth,1
+the governing council has promoted a complex process of enhancement of these tools and techniques along several avenues,1
+a better integrated and sounder financial sector has also been able to transmit our policy impulses more evenly across the euro area,1
+second we provide central banking services that are conducive to financial integration most prominently by operating europes leading largevalue crossborder payment system target,1
+within the euro area the euro is certainly acting as a catalyst to promote the integration of product and capital markets,1
+the second and perhaps more important consideration is that the developments in the second half of the century in both areas globalisation and europeanisation can be seen as a process whereby domestic economic solutions have increasingly been applied to the international economy,1
+consequently the euro area economy rebounded by 22 per cent in the second quarter of the year which was more than had been anticipated,1
+89  first through enhanced trade linkages and higher crossborder knowledge flows economic globalisation may contribute to greater similarity in productivity dynamics across countries,1
+together with the onset of deregulation under the eu single market programme these regulatory changes triggered a wave of consolidation and an improvement in the efficiency of italian banks that aimed to allow them to be competitive in the larger market that now extends into the euro area and the eu,1
+the strength of global demand provides a positive external environment in which euro area exports are expected to grow significantly both this year and next,1
+simultaneously most of the stressed euro area countries have made remarkable progress in gaining competitiveness,1
+financial development is good for productivity growth and capital accumulation and financial liberalisation generates sizeable growth benefits,1
+this socalled process of creative destruction allows financially developed economies to converge faster towards the efficient production frontier and to experience higher overall productivity growth,1
+in most countries including italy this convergence has meant significantly reduced financing costs thereby providing an environment favourable to growth and employment,1
+having said this the recent wave of international financial integration has been very pronounced in industrialised countries reflecting the relative stability of the policy and institutional environments in these countries,1
+the asiapacific region is becoming a larger player in the global economy which has an impact on the rules of the game,1
+the increases in commodity prices have been supported by dynamic growth in emerging market economies,1
+this will increase labour market participation and employment foster an attractive environment for investment and innovation help to promote flexibility in wages and prices and strengthen all the other forces driving productivity and economic growth,1
+the introduction of the euro has also contributed to the improved dynamics of the european economy,1
+closer cooperation among policymakers and regulators the setting of common rules and the promotion of consistent practices merely help to provide the necessary framework for the proper functioning of a single european financial market with a depth and sophistication similar to that of the united states,1
+i would like to conclude this brief overview of the international role of the euro by emphasising that developments in this field will be the outcome first and foremost of a marketdriven process,1
+ireland spain and portugal for example have implemented a series of reforms they have become more competitive and their economies are recovering,1
+integration and harmonization are intended to promote economic wellbeing as increasingly integrated financial markets that ignore national boundaries broaden the geographic domain in which financial institutions and their customers make decisions,1
+for a large part economic integration has been the engine of this process,1
+the introduction of the euro has rapidly and effectively contributed to the healthy consolidation and integration process which we are now witnessing in many business sectors across europe,1
+effectively the share of foreign branches in banks total assets has increased continuously to reach around 10 of the market for the majority of eu countries,1
+one of the major benefits of globalisation is that emerging and also developing countries are increasingly involved in the exchange of goods and capital and can benefit from the transfer of knowhow and technologies,1
+second at a microeconomic level germanys export performance supports both upstream producers and downstream producers in the rest of europe,1
+lower lending rates and the recovery in activity have bolstered corporate profitability with a consequent increase in investment,1
+financial integration is a key factor in the development and modernisation of the financial system which in turn increases the potential for greater and more sustainable noninflationary economic growth,1
+the countries in this area have an increasingly important place among the worlds emerging markets,1
+slide 8 percentage share in extraeuro area trade  at the same time it seems clear that the central and eastern european eu countries have also benefited significantly from a closer integration with the rest of the eu,1
+it can also offer more possibilities for financial institutions to better manage and diversify their relevant risks and realise economies of scale leading to greater efficiency of the financial system,1
+in particular many of the asset management and investment banking services are already quite internationalised as the capital markets have taken significant steps towards integration and growth following the introduction of the euro,1
+the german economy has often been thought of as the engine of the european economy,1
+moreover a stronger economy generates greater volumes of sustainable bank lending,1
+sepa will bring a move towards more intensive use of electronic payment instruments and we must take full advantage of these facts and move the retail payment market to the next level where services and payments are combined in an electronic environment creating endtoend straightthrough processing,1
+in the euro area these sectors have been responsible for almost one fifth of the jobs created since 2013,1
+to the extent that this would contribute to the efficiency liquidity and range of financial services offered in the euro areas financial market the euro would also become a more attractive currency for international investors and issuers including central banks,1
+they reflect the international competitiveness and dynamism of your economy and the confidence which international investors have in its future,1
+the first priority is therefore to complete the single market for services which already account for twothirds of global gdp and employment and represent many of the potential growth sectors in the age of digitalisation and automation,1
+this comprehensive range of measures has worked its way through the financial system leading to a significant easing of financing conditions for consumers and firms,1
+the effective and timely implementation of the investment and reform plans under the next generation eu programme should help modernise our economies enhance longterm growth and economic resilience and support the green and digital transitions,1
+furthermore they have also had a clear impact on global markets prompting further integration of international financial markets,1
+the countries of the region have also made remarkable progress in terms of institutional and structural convergence,1
+in most industrialised nations on the waves of financial liberalisation and globalisation capital markets have been growing tremendously over the past two decades both in terms of volume and value of transactions and in the development of new types of securities,1
+the development of crossborder investment strategies has been favoured by the euro areawide and paneuropean market indices,1
+over the past 14 years the euro area countries have reestablished and reinforced their economic links with central and eastern european countries via stronger trade increased foreign direct investments and sizeable financial integration,1
+this means that the financial base of real economic activity in europe is largely founded on bank intermediation which is also a feature of the japanese economy,1
+given its large share net interest income thus plays an important role in bank profitability,1
+capital inflows from the eu together with this regions growing integration into paneuropean production chains will help the economies here to catch up and will gradually contribute to higher living standards  provided of course that sound domestic policies are in place to make this happen,1
+although a considerable consolidation of the european banking sector has taken place over the last decade this consolidation has so far been almost exclusively based on mergers and acquisitions within national borders,1
+28 and because regions become more dynamic internally when they integrate further we could see europe emerging as another economic engine on which the global economy can rely to sustain growth,1
+in the longer term it is likely that these developments will indeed contribute to increased productivity and higher growth potential on a global scale,1
+gdp grew at 22 in 2016 driven by strong domestic demand on account of improving business and consumer confidence and positive wealth and realincome effects,1
+moreover insofar as financial integration fosters the diversification of the activities and risks of financial institutions and thus furthers the efficiency and soundness of the financial system it should also promote greater productivity in the financial sector and thus higher levels of welfare,1
+taking into consideration the renewed relevance of retail payments the key success factors in the years ahead will be harmonisation innovation and increased competitiveness,1
+we expect the continued expansion of the world economy and domestic demand from the private sector as the main driver of economic growth in the euro area,1
+the enlarged eu consolidates its position in the first league of the worlds biggest unified markets accounting for about one fourth of world trade and global income,1
+moreover the ongoing consolidation of the european banking sector seems to have promoted higher efficiency in the banking markets,1
+in this context relevant factors are the weight of the euro area in the global economy and the size of its foreign trade and financial linkages since increasing economies of scale will play an important role in promoting the use of the euro,1
+the degree of integration of international financial markets has significantly accelerated in recent decades particularly since the second half of the 1990s,1
+swift progress in the implementation of these and other necessary structural reforms will boost confidence among investors and consumers thereby fostering economic growth and job creation,1
+in particular resilient growth in asia and in the oilexporting countries has bolstered global growth,1
+4  the optimisation of global value chains led to the production of many critical inputs becoming highly concentrated in certain geographical areas,1
+ii sepa spurs overall economic growth     slide 9  sepa makes an important contribution towards a more integrated payments market in europe which will foster financial market efficiency and bring substantial economic benefits to society,1
+via the international expansion of banking groups and interbank competition these beneficial effects are expected to spread to the european banking sector as a whole fostering closer convergence towards better more efficient banking practices deepened integration and greater breadth depth and liquidity of the markets,1
+yet a number of euro area banks have successfully delivered robust earnings in recent years,1
+moreover strong money growth has been primarily driven by a rapid expansion of loans to the private sector underpinned by the economic recovery,1
+an increasing number of economies across both advanced and emerging markets are benefiting from the recovery,1
+indeed macroeconomic stabilisation has been accompanied by a remarkable performance in terms of job creation,1
+other channels through which free trade can raise overall efficiency include increased economies of scale due to larger markets aggregate productivity gains due a reallocation towards more productive firms and at the firm level productivity gains from higherquality imports,1
+starting with the euro area recent economic developments point to a much brighter outlook than was expected earlier this year,1
+globalisation has already helped to raise our living standards considerably,1
+financial integration will foster a more efficient allocation of resources increase competition reduce costs lead to higher trading activity and more transparent pricing and thereby raise the overall potential for stronger economic growth,1
+cee countries in particular have been able to accelerate the process of technology absorption from firms at the productivity frontier which has proved to be a key ingredient in the process of convergence,1
+the preferred scenario which would allow the global economy to continue to grow at a measured pace demands close coordination of economic policies both within individual countries and between the main economic areas,1
+and greater competition spurred rapid adoption of financial innovations with securitisation and risk transfer markets playing an important catalytic role in expanding the loan supply,1
+in recent years large flows of foreign direct investment among euro area countries have exemplified this intensification of corporate linkages,1
+during the years of economic expansion strong domestic demand was the main driving force behind economic growth with domestic demand itself being fuelled by among other things rapid increases in real disposable income and overly optimistic expectations about future income,1
+finally greater investment in rd and innovation by spanish firms would enhance their competitiveness and contribute to generate more growth through higher value added,1
+and it was precisely those industries that experienced higher total productivity growth globally,1
+capacity utilisation has risen over the past two years for manufacturing and services,1
+in todays globalised economy integrated sets of timely and reliable statistics play a key role in policymaking as well as in investors decisions,1
+importantly both our bls and safe attest to improved credit conditions for smes which form the backbone of the euro areas corporate sector,1
+and from 1999 onwards financial integration gained additional momentum with the introduction of the euro and the financial services action plan fsap,1
+therefore by speeding up the reallocation of capital from declining to evolving and promising industries  the schumpeterian process of creative destruction  both financial integration and financial development positively influence the efficiency of a financial system ultimately leading to a higher potential for economic growth,1
+against the backdrop of this substantial easing of financing conditions domestic demand has become the mainstay of growth in the euro area making the recovery more resilient to developments overseas,1
+according to the latest data the euro area economy grew by 25 in 2017 reflecting strong domestic momentum in private consumption and investment,1
+the european banking sector has undergone considerable consolidation in recent times and the banking markets in the different eu countries have become fairly similar in terms of their market structures not least because the euro has created more transparency across national borders,1
+however in ireland and portugal export performance has also been strong because programme countries are now reaping the benefits from their significant improvement in cost competitiveness,1
+furthermore an enlarged single market is enhancing the scope for economies of scale,1
+for one the eu built up a broad alliance of industrial and developing countries with ambitious targets which significantly contributed to the success of the paris conference,1
+as regards structural reforms the governing council fully supports any efforts that enhance competition increase productivity and foster economic flexibility thus promoting higher sustainable real gdp growth and employment,1
+in a global economy made up of about 200 sovereign states multilateral arrangements integrate the policy architecture by providing the incentives to improve national institutions and policies,1
+such conditions allied with strong settlement infrastructure facilitate the development of interbank trading which enhances the efficiency of market and the economy as a whole,1
+the introduction of the euro itself has undoubtedly led to a deeper and more integrated financial market,1
+indeed financial innovation can render financial markets more efficient by rendering them more complete thereby allowing firms households and governments to interact in the market place facing lower transaction costs enhanced risk sharing instruments and contracting possibilities,1
+8 recent trends in domestic and international financial markets point to developing countries also having improved access to different types of finance,1
+likewise growth and productivity of the financial services sector are important in their own right as a contribution to overall economic activity,1
+the development of european economic and financial statistics has been remarkable in the past years,1
+it has certainly propelled the economic recovery into a robust and broadbased expansion,1
+external factors such as more sustained growth in world gdp than in euro area gdp rising global trade integration and a sizeable increase in trade with the new eu member states are also playing an important role,1
+from chinas perspective the relative importance of the eu in total trade has grown even more impressively the eu is now the first trading partner of china having overtaken both the united states and japan since 2005,1
+these lessons are      first the critical mass achieved by the full integration of twelve national markets into one has effectively improved the prospects for an efficient allocation of capital to the most productive investment opportunities hence for higher sustainable growth,1
+and that is now feeding into aggregate demand through the most interestsensitive demand components  consumption of durables and investment,1
+in conclusion it is clear that the hicp has played is playing and will indeed continue to play a tremendous role in our economies and societies,1
+looking ahead educational policies focusing on lifelong learning appears to be especially important in facilitating a smoother reallocation of workers between sectors and firms,1
+in turn this has been shown to lead to easier financing conditions for companies to stronger entrepreneurship and to higher productivity,1
+why a macroprudential approach to nbfi matters from a central banking perspective the nonbank financial sector has grown considerably in size over the past decade and it has become increasingly relevant for funding the real economy,1
+this will also help to improve the prospects for economic growth and further employment creation,1
+for many years ireland has been a great success story openness to trade and a high degree of flexibility have allowed the country to benefit substantially from globalisation during the last decades,1
+the degree of synchronisation of business cycles across euro area countries has grown since the 1990s and remains high,1
+lending rates for euro area firms and households have declined to historic lows and converged across the region and growth in bank lending volumes has significantly recovered since the beginning of 2014 thereby supporting investment and job creation,1
+in the european reality given the efforts towards further integration in financial markets the two concepts are strongly aligned and integration is fostering competition,1
+in its provision of safe and efficient financial market infrastructure services the eurosystem plays an integral role in strengthening the international role of the euro,1
+in the euro area the impact of these developments has been amplified further by stage three of economic and monetary union in particular as a result of the introduction of the euro the single monetary policy and the integration of the euro area financial markets,1
+the euro and the financial markets     the creation of the euro has accelerated the development and integration of the capital markets in europe which in recent years have also been fostered by financial liberalisation and technological innovation,1
+banks report that our measures are contributing to more favourable terms and conditions on loans and are supporting credit creation,1
+bank lending to households and companies is growing while demand for loans is rising,1
+in terms of structural policies measures have been taken in the euro area countries to increase the flexibility of labour and product markets with positive results and further benefits to come,1
+in relation to measuring international trade crossborder production arrangements such as contract manufacturing have considerable implications for concepts that are central to the bop,1
+and banking groups operating in several euro area countries will immediately enjoy more scope in their liquidity management,1
+global growth prospects are showing signs of strengthening and may well further support the recovery,1
+within the eu the banking industry is now actively moving towards integrated systems with a higher degree of efficiency,1
+the increasing share of output generated by services is a welldocumented feature of industrialised countries,1
+it is therefore not surprising that the crisis has led to an even better recognition of their increased economic importance and to a better integration in global governance,1
+in the early years of this century many emerging economies expanded at a rapid pace,1
+in many respects the broad macroeconomic fundamental conditions for growth and for improved economic performance in the area are more favourable now than they have been for many years,1
+all these developments have strengthened the banking sector and in addition have led to a greater integration with the eu with significant involvement of banks from eu countries,1
+in particular the rapid integration of the wholesale banking and capital markets as well as largevalue payment systems has already created closer links between banks at the euro area level,1
+a third influence which is in keeping with my previous two points is that globalisation has also exerted a positive effect on the productivity of the global productive sector by facilitating and accelerating the phenomenon of restructuring and optimisation of the division of labour in a wider crossborder context,1
+this economic prowess is also gradually translating itself into a greater presence in the financial sphere,1
+capital flows channelled through the banking sector have been fostering rapid domestic credit growth in almost all countries,1
+credit to the private sector also continued to expand rapidly during september 1999 at a rate in excess of 10,1
+the outlook for the euro area economy the euro area economy grew by 08 per cent in the second quarter of 2022 mainly owing to strong consumer spending on services as the economy reopened,1
+however the profile of the german saving rate also reflects the ongoing recovery in the residential investment sector,1
+banks operate internationally and financial flows have become global in character,1
+in germany ulc growth relative to the euro area has accelerated strongly in recent years on the back of more robust wage growth and slowing productivity,1
+its share on global gdp has risen substantially it accounts for a larger share of global trade and is gradually liberalising its capital account and thereby integrating into global financial markets,1
+the crossborder provision of financial services has also increased substantially,1
+24  nevertheless economic development robust wage increases and terms of trade deterioration in lowcost countries as well as increasing sophistication variety and technological content of exports would suggest that lowcost countries are making a leapup in the value chain and that their export bundles are becoming increasingly similar to the more advanced western economies which will ultimately lead in the longrun to a convergence of their export prices to higher international levels,1
+and we know that technological progress will continue unabated in europe,1
+2017 firm growth dynamics and productivity in europe in remaking europe the new manufacturing as an engine for growth bruegel,1
+this confirms the view that euro area economic growth has become more broadly based,1
+in particular house prices in many industrial countries including several euro area countries have risen at unusually fast rates in recent years supporting economic activity through various channels,1
+in the services sector where trade has been growing and continues to grow our connection with the united states is even more important,1
+human capital improvements in these countries came together with a fast development of the sectors within information and communication technologies,1
+at the same time those fastgrowing countries have also been absorbing more foreign direct investment,1
+the easing of financing conditions has underpinned the recovery in domestic demand which is now the mainstay of growth in the euro area,1
+this area constitutes an economic region that roughly equals the united states in terms of both its economic strength and its degree of macroeconomic openness,1
+for instance in the last ten years investment in information and communication technology in the united states has doubled that of the euro area,1
+as a result of these two factors banking sector assets and liabilities are expected to expand substantially in most new member states over the next two decades,1
+there is another important channel through which a welldeveloped financial system fosters innovation and sustained growth by facilitating the rapid reallocation of capital from declining industries to fastgrowing sectors and in this way raising aggregate productivity in the economy,1
+even thereafter in many of these countries export growth has been led by significant competitiveness gains,1
+in retail banking markets emu will induce further progress in payment systems both directly and via interaction with technological innovation the major driving force behind changes in payment systems,1
+this contributes to a positive feedback loop between consumption employment and income further bolstering the recovery,1
+there are numerous private and publicsector initiatives under way to promote the integration efficiency and security of the european securities infrastructure,1
+the enhancements we envisage for europes financial market infrastructure will benefit users from a technical perspective in that they will have access to all available services via a single gateway,1
+it is clear that a more efficient financial system can promote economic growth by accelerating the allocation of capital to better investment opportunities,1
+we are perhaps already seeing the first signs of this process over the last three years the growth of the euro areas international trade in financial services has surpassed the growth in all other sectors of services,1
+as the economy develops the precise combination of cooperation public action and competition will also evolve,1
+7 data from 27 markets in europe between 1995 and 2009 confirms that the shift to efficient electronic retail payments stimulates overall economic growth consumption and trade,1
+finland is often seen as a forerunner in the development of retail payments certainly when it comes to digitalisation and its effects,1
+moreover we have recently witnessed an increase in productivity growth,1
+also greater financial development allows countries to adopt new production technology faster and stimulates growth through a process of creative destruction by enhancing firms entry,1
+the cyclical recovery is gaining momentum and the expansion is broadening across sectors and countries showing the effectiveness of the transmission of our measures throughout the entire euro area economy,1
+research and development supported the dynamic gains from faster growth,1
+the available data suggest that the marked increase in trade and investment volumes contributed to gdp per capita growth which stood at around 17 in the period between 1996 and 2006,1
+it supports the purchasing power of consumers and it is a reflection of the increasing cost competitiveness of the production of these economies,1
+second there has been a large expansion in global productive capacity on account of the opening up of emerging economies to international trade and production,1
+a higher level of competition will over time contribute to an increase in the sustainable growth rate of the eu economy,1
+the upcoming review of imf surveillance is well timed to support a resilient global economic system during and after the recovery phase,1
+other factors in europe which would be conducive to improved economic performance include the growing integration of the euro area into the global economy increasing competiton  reflecting both the single market and the single currency  and some initial progress in the field of goods market deregulation,1
+trade among euro area countries has also risen strongly,1
+1  clearly the availability of international economic and financial statistics has greatly improved during the last decade,1
+strong growth in emerging market economies in asia is a major driving force behind these figures,1
+this work is particularly relevant for the ongoing banking and financial system integration that is taking place in the eu and as i already pointed out should encourage us to go further in the integration of the banking sector,1
+new ecb research finds that the euro has facilitated trade creation and the emergence of gvcs within the euro area especially between old and new member states since 2007,1
+global economic activity has become more balanced across regions and is still robust thereby providing ongoing support for euro area exports,1
+at the world level we have seen in 2006 yet another year with growth rates above 5 with very dynamic growth in emerging asia and high rates also in the new eu member states,1
+the development of financial markets in the euro area is shaped by a set of broad economic trends all of which are conducive to the development of deeper more liquid and more efficient financial markets,1
+3 as this interdependence within the euro area becomes stronger the euro area is also becoming a more open economy,1
+in addition to the specific factors resulting from the introduction of the euro the rapid change in information and communication technology is likely to add further potential for structural changes in the economy,1
+trade in intermediate goods and services as a result of the rising internationalisation of production processes has been a growing driver in this regard,1
+the structural improvements which increase the longerterm growth potential of the economy benefit the domestic economy in particular but they also improve the attractiveness of the area for investment and therefore the attractiveness of holding its currency too,1
+this suggests that the economic expansion is likely to have firmed and broadened in the first few months of this year,1
+as smes are the main engines of job creation and economic growth they are also important drivers of innovation in the economy,1
+in particular growth in the united states is expected to accelerate on the back of solid investment and consumption data and significant fiscal stimulus,1
+one school believed that financial integration would foster an improved allocation of capital higher efficiency and higher economic growth,1
+the development of these institutions is consistent with the imperfect globalisation of financial markets as the increased preference for highly liquid assets of some agents is put to use by these funds to finance the restructuring of companies and make them more efficient,1
+most academic studies suggest that in the long run enlargement is likely to contribute substantially to economic growth in the eu,1
+this appears to be related to an increase in employment over the last few years and a production structure more oriented towards labourintensive sectors in particular construction and services activities,1
+generally speaking advances in financial integration may enhance risk sharing among the countries involved improve the allocation of capital and stimulate economic growth,1
+for the bank the geographical location of the premises gradually becomes irrelevant and economies of scale are dramatically increased due to the size of capital investments required to keep pace with technology and to provide adequate security,1
+furthermore by making markets deeper and more liquid financial integration creates economies of scale and increases the supply of funds for investment opportunities,1
+at the same time the reopening of the european economy and the prospects for a more normal summer tourist season are set to provide significant momentum in the coming months especially for services sectors and touristintensive countries,1
+to build with passion and vigour a shared future in which the conditions for growth are more favourable in which all citizens feel that their skills are fully valued in which individual wellbeing goes hand in hand with collective wellbeing,1
+the importance of posttrade processes and services for the overall economy will grow significantly    capital markets play a vital role for the global financial system and for longterm economic prosperity,1
+moreover given the prominent role of euro area banks in the banking sector of this region the establishment of the ssm will further intensify our institutional relations,1
+education financial development and economic performance    one sector which has undergone a rapid transformation in the past decades and especially since the 1990s partly as a result of the largescale adoption of advanced information and communication technologies is the financial sector where the complementarity between human capital and physical capital can be expected to be particularly large,1
+and it has been a key promoter of the modernisation of our economic architecture in recent years alongside the ecb and other eu institutions,1
+open trade investment and sustainable financial flows play a key role in enhancing productivity for example through the crossborder diffusion of new technologies that drive efficiency improvements,1
+in particular the fast pace of expansion of economic activity in emerging asia is expected to contribute to more 50 of the projected rate of growth of global aggregate demand outside the euro area,1
+the internationalisation of economic life is reflected in the sharp enlargement of crossborder activities in the goods and capital markets globally,1
+the combination of technological progress and market structural changes should have spurred productivity growth in the euro area financial industry,1
+the recovery has been driven almost entirely by domestic demand supported by a virtuous circle between rising employment labour income and consumption,1
+more widespread knowledge about how to exploit new technology would obviously speed up the rate of diffusion and foster non linear effects as regards the benefits associated with it,1
+this compares with 03 in the last quarter of 2005 with domestic demand including private consumption making a significant contribution to higher real gdp growth,1
+in fact financial integration is a key factor in the development and modernisation of the financial system which in turn increases the potential for greater and more sustained noninflationary economic growth,1
+an expansion of the countrys domestic financial markets should allow for a more efficient allocation of capital which should benefit chinas longterm growth prospects,1
+financial development in these countries is best supported by an increasing financial integration into the financial market of the eu,1
+the related improvement in the efficient allocation of production factors may help to enhance the production potential of the economy,1
+by stepping up the pace of structural reform in labour markets european countries can increase productivity and labour force participation and thereby raise potential growth substantially,1
+the economic recovery gradually broadened in the course of 2006 and the nature of the economic expansion became increasingly self sustaining with domestic demand acting as the main driver,1
+10 clearly financial development in the region has advance rapidly,1
+the russian federation is a major supplier of energy products to the eu and will in future become an even more predominant source of these products,1
+again the integration of india into global markets has been even faster,1
+we expect that further deregulation as well as common european standards for regulation and the progressive integration of national financial markets in a unified area transacting in the euro will increasingly grant easier access to venture capital and allow agents to efficiently pool risks both domestically and internationally,1
+nevertheless internationalisation is also progressing in this area the business with customers located in other euro area countries is growing faster than the domestic business in respect of all major balance sheet items of banks,1
+recently some new initiatives have been instigated in this respect and it is expected that market forces will bring about further developments in the near future,1
+in the united kingdom the bank of england has seen its responsibilities in both the macro and microprudential fields enhanced,1
+securitisation globalisation and integration of the financial markets have strengthened and will continue to strengthen the role of asset prices and that of financial asset prices in particular,1
+nevertheless these recent developments may turn out to be the initial signs of an overall improvement of the euro areas productivity performance,1
+firms will be encouraged to increase investment bringing forward the economic recovery,1
+in addition the eu has also acted in particular in emerging europe as an anchor for an institutional environment which is conducive to wellfunctioning markets,1
+in general the benefits of size and hence the incentive to make large investments basically arise from developments in information technology and from the internationalisation of the interbank and capital markets,1
+in short the european economy will experience ever greater and more sustainable noninflationary growth as its financial system becomes more integrated,1
+there has also been significant progress in implementing reform recommendations related to the longterm sustainability of public finances skills and lifelong learning and the business environment,1
+of course greater economic integration in europe has been accompanied by greater institutional cooperation,1
+in line with earlier expectations domestic demand has increasingly become the main source of growth,1
+this makes emerging markets one of the main engines of world growth with a contribution of over one half last year,1
+over the past few years these monetary frameworks have been put to test by large capital inflows driving rapid credit growth and domestic demand in the region,1
+it also involves the pursuit of synergies among the several eu public policies applicable to the financial sector notably financial services consumer and competition policies,1
+as trade integration within the euro area becomes stronger the region is also becoming more open to the outside world,1
+in particular the increase in the net external asset position of the banking sector has supported domestic broad money growth in recent months,1
+central banks increasingly recognise that successful communication helps them work in tandem with financial markets and in general will contribute to achieving policy objectives more effectively,1
+statistics for the euro area achievements and outlook    over the past ten years major progress has been achieved in developing statistics for the euro area,1
+the role of vertical supply chains in boosting growth in jobs and growth supporting the european recovery imf april 2014,1
+the euro area has actively contributed to the rise in international trade,1
+for all eu countries it means the widening of the single market increasing competition and consequently new stimuli for better productivity and growth performance,1
+the introduction of such policies will also strengthen economic confidence and support demand in the short run,1
+the integration of emerging economies into global markets of goods and services has been similarly swift,1
+it now stands 7 above its precrisis level and surveys point to continued strong investment demand capacity utilisation in the capital goodsproducing sector is close to alltime highs for the euro area and for the four largest economies,1
+47 in any case economic interdependence will increase as the international orientation of the economy augments,1
+over the last 15 years the financial sector has grown significantly faster than other parts of the economy,1
+first the integration of our economies and with it the convergence of our member states has also greatly increased,1
+we expect that further deregulation as well as common european standards fro regulation and the progressive integration of national financial markets in a unified area transacting in the euro will increasingly grant easier access to venture capital and allow agents to pool risks both domestically and internationally,1
+output growth has been gathering pace throughout 2014 and in the first half of 2015 and employment has been increasing,1
+in this regard the crisis has uncovered four shortcomings in particular first the eu fiscal rules were incapable of promoting prudent fiscal policies in good times second there was no robust mechanism to prevent macroeconomic imbalances within the eu or to correct them third insufficient coordination of macro and microprudential supervision of financial sectors allowed a buildup of vulnerabilities in banking sectors and finally the absence of a crisis management framework frustrated efforts to contain contagion between countries and between the balance sheets of banks and sovereigns respectively,0
+the second challenge concerns another aspect of policymaking left to the authorities in the individual member states namely of course fiscal policies,0
+6 such differences in institutional quality are therefore clearly suboptimal from a monetary policy perspective,0
+third a number of other factors show up in an expansionary fiscal stance namely other discretionary measures unexpected revenue shortfalls eg,0
+in 2007 the us current account deficit amounted to over 6 of its gdp,0
+but from the perspective of financial markets such communication is disastrous because it indicates to investors that some sovereign assets previously considered risk free have become risky ie,0
+the crisis has shown how costly this understanding can be in terms of first distorting the incentives of asset market participants in the boom phase and second tolerating the buildup of financial imbalances that can grow so large that their eventual unwinding is close to impossible to tackle ex post with the conventional tools of monetary policy,0
+this implies both major institutional and logistical consequences for our institution,0
+risks to the ecbs balance sheet let me turn to the second argument which is related to the ecbs risk exposure,0
+in addition to structural issues there are a number of potential risk factors that have not materialised,0
+this in turn risks externalities for others in the currency area,0
+the bigger threat to price stability over the long run does not lie in relative price changes but rather in a loss of independence by central banks following a situation in which they have they ventured far into a political agenda with distributional consequences,0
+and this brings me to my second point it seems rather that countryspecific factors such as weak institutions external and domestic financial imbalances limited exchange rate flexibility and fiscal imbalances were also factors behind the volatility,0
+as we know now too well macroeconomic imbalances within the euro area grew unabated,0
+the risks to the economic outlook which previously were balanced are now on the downside mainly relating to tensions in some financial markets,0
+as a result we decided it was appropriate to continue dialling back our net asset purchases which were intended to combat an environment where disinflationary risks dominate,0
+furthermore the scope for costcutting appears to be larger if the merging institutions have overlapping operations,0
+fiscal policy under the pressure of losing market access altogether took mainly the more expedient route of higher taxes which led instead to lower growth and therefore renewed market jitters somewhat defeating its original purpose,0
+but we also have to take into account that the decline was just as fast and even more dramatic in the months just after the lehman bankruptcy,0
+it is my contention that the main driver of the crisis was located in the financial sector particularly banks which intermediated large capital flows towards the periphery creating imbalances that became unsustainable when a sudden stop occurred following the international crisis and the abrupt revision of price of risk that it entailed,0
+on the other hand if the functioning of the credit risk transfer market were impaired for instance if financial market volatility rose unexpectedly this could have an adverse impact as banks might not then be able to layoff their credit risk in the way they have become accustomed which could in turn induce greater caution in their lending to lower quality borrowers in particular,0
+6 on the other hand the main disadvantages lie in potential conflicts of interest arising from the conduct of monetary and supervisory policies at the same time,0
+in fact there are a number of challenges both immediate and particularly mediumterm ones that the euro area economy is facing and which are potentially more difficult to overcome than repairing the banking sector,0
+incidentally these signalling difficulties are in my view one of the major reasons for the failure of the ccl,0
+the lack of integration of the mortgage capital market comes at a cost both for issuers and investors,0
+in such circumstances capital accumulation will be lower than it could have been in a situation of price stability and the output growth rate is consequently reduced,0
+in all scenarios a deep recession is envisaged in the severe scenario real gdp would fall by 12 percent in 2020,0
+nevertheless they could expose surviving clearing members to sudden and very large liquidity demands which they would have to source in the market and could thus have strong contagion effects 14  even pushing members to close out their contracts and leave the ccp rather than face the spiralling costs of remaining a member,0
+looking ahead hicp inflation is likely to remain well below 2 in 2009 and may reach negative levels around midyear,0
+slide 9 financial balances by sector the chart shows how in spain ireland and portugal it was the increase in the deficit of nonfinancial firms until the onset of the crisis that contributed in turn to the increase of the external deficit whereas in greece the public deficit had a bigger influence,0
+on the other hand if the fiscal starting position is not particularly solid when an economic downturn sets in there may come a point where budget deficits become excessive,0
+the view that crisis resolution mechanisms were inadequate also prevailed during the asian crisis of the 1990s,0
+in fact european productivity growth had already started to stagnate during the mid1990s,0
+furthermore structural factors are also weighing heavily on euro area banks profitability,0
+the problem with this is that it is nonspecific as the debate which took place few years ago in the imf on sovereign debt restructuring mechanisms showed,0
+there are two dimensions to this question the longerterm structural implications and the conjunctural aspects of the financial stability outlook at present,0
+second estimates of future agerelated costs themselves are surrounded by a high degree of uncertainty with risks tilted towards stronger increases than assumed in the baseline of the ageing report,0
+taken together these factors mean that not only the efficiency of the measures per euro of liquidity injection but also the overall scale of the measures is difficult to anticipate,0
+the potential huge extension of central bank liquidity with monetary policy consequences and the possibility of significant losses to the central bank in a crisis with rapidly declining asset valuations renders the proposal controversial and fraught with difficult practical implementation problems,0
+national fiscal policies resulting in different changes to indirect taxes or administrative prices also seem to explain part of the inflation differentials,0
+the truth of the matter is however that the efficiency losses can be very large,0
+on the other hand the ability of central banks to react to such large shocks may be impaired,0
+in 2010 the euro area deficit to gdp ratio only broadly stabilised at a very high level while the debt ratio continued to increase,0
+9according to moodys the growing risk that portugal will require a second round of official financing before it can return to the private market particularly if the country were to suffer contagion from a disorderly greek default or merely from the growing likelihood of a default,0
+monetary policy would appear passive because the economy itself was evolving slowly,0
+however when they become too large relative to what is implied by economic fundamentals problems like financial complexity poorly understood financial innovation herding behaviour and endogenous risktaking  to name just a few  suddenly outweigh the benefits,0
+portfolio investments on the other hand which include the public sector recorded higher outflows in 2006 of usd 379 billion compared with usd 258 billion in 2005 while portfolio investments to emerging market economies decreased slightly,0
+nevertheless the fact remains that forecasters were not able to anticipate the disinflation for the euro area as a whole from 2012 or for the larger member countries,0
+conversely intermediate regimes such as the soft pegs that prevailed in a number of asian countries prior to the financial crisis are considered under the bipolar view as being difficult to sustain in the long run,0
+however a monopolistic market structure also suffers from deficiencies to which i shall return later,0
+the european commission projects that the euro area government deficit will increase from 20 of gdp in 2008 to 64 in 2009 and 69 in 2010,0
+loukas and his coauthor also find the second explanation difficult to reconcile with the data as investment spending on unmeasured capital would need to be implausibly large to account for factorless income,0
+but the dynamics were the same in that they essentially reflected an evaporation of confidence in banks,0
+4  the wrong type of deleveraging also has a further effect which i want to concentrate on today it harms the transmission of monetary policy,0
+of course in reality the trend is neither linear nor exogenous  this is why we cant use such simple charts for informing policy,0
+the argument goes that largescale bond purchases would be perceived by markets as preventing policymakers from raising rates quickly as this would cause losses on central banks balance sheet,0
+meanwhile the contribution of domestic demand to gdp continued on its downward path in part on account of subdued wage growth and a tight fiscal policy see chart 12,0
+but recognition of this need for forecasts in an inflation targeting strategy immediately raises practical difficulties for the escb,0
+imagine a neutral observer who looked at the financial sector about a decade ago and then didnt look at it again until the eve of the current financial crisis,0
+the capital and borrowerbased macroprudential instruments i just mentioned are targeting risks among the banking sector and the real economy,0
+these developments highlight important shortcomings not only at the level of national policymaking but also with respect to the institutional framework at the european level,0
+these estimates may in fact be rather conservative as empirical studies show that during a very severe economic downturn the impact of deteriorating financing conditions can be several times as high as in normal times,0
+in addition issuers may have wished to avoid placing new issues around the century date change for fear of possible liquidity problems which eventually did not occur,0
+at the same time the visible decline in marketbased measures of inflation compensation to belowtarget levels in recent weeks that is shown in chart 6 will warrant monitoring,0
+it should be mentioned that on a delicate issue such as the exchange rate frequent declarations by individual policymakers who have not been delegated to make such statements have no impact at all on the markets sometimes they may even backfire,0
+slide 9 also tells another story however  namely that capital misallocation as measured by the dispersion of the marginal product of capital did not end with the crisis,0
+for example the ecbs general documentation explicitly states that asset management vehicles amvs resulting from a resolutionrelated separation of banks through the application of for example the brrd are not eligible counterparties for ecb refinancing,0
+however as i already alluded to these considerations oversimplify the issue,0
+when a policymaker discusses an issue like deflation which  rightly so  raises emotional feelings the reaction might be to ask why did he discuss such an issue indeed when the discussions on this issue began in late 2002 markets reacted negatively,0
+however the increasing reliance of large euro area banks on noninterest income and in trading income in particular could imply increased risks in the future,0
+charts 1 and 2 seem to suggest that the concept of private sector involvement has introduced a sovereign risk premium specific to the euro area,0
+second and fundamentally even conceding that such practices might be widespread in highinflation regimes it is hard to believe that they would survive under more stable monetary conditions,0
+14 in all likelihood therefore a currency crisis in europe may well have arisen with speculative attacks on weaker currencies leading to large devaluations,0
+5 the macroeconomic effects of an excessive shrinkage of banks assets would eventually lead to a reduction in investment which would further dampen the economic cycle,0
+the first lesson was that the euro area lacked an institutional framework to identify and correct macroeconomic imbalances,0
+the underlying legal and administrative complexities of such an operation were also not inconsiderable,0
+what makes this development complicated as i said before is the fact that the assessment requires the shortterm cyclical element to be disentangled from the longerterm trends or structural changes,0
+in the severe scenario our staff projections suggest that the level of real gdp at the end of 2022 could remain 96 below the march 2020 staff projection path,0
+economic uncertainty is being augmented by geopolitical risks such as the possibility of a nodeal brexit,0
+on the other hand uncertainty would also tend to increase during the recession,0
+these misalignments have also become visible in terms of deviations from price stability,0
+of course it comes against strong headwinds generated by deleveraging,0
+monetary and fiscal policymakers are often used as scapegoats especially in times of weak economic development as we are witnessing at the moment,0
+slide 5 turning now to public savings population ageing is expected to exert considerable pressure on public finances table 1,0
+apart from the wellknown recognition and decision lags in policymaking attempts to coordinate ex ante would not only blur the specific responsibilities of individual policymakers but also reduce their accountability,0
+the issue is whether and to what extent the recent great recession and the resulting slow deleveraging process have exacerbated this trend generating permanent costs from the crisis,0
+not only are nonbanks highly interconnected with the banking sector they are also becoming more and more interconnected among themselves their portfolios tend to be similar making them more vulnerable,0
+while this mainly serves as an illustration as it is based on a number of assumptions and input parameters it is indicative of the sort of tighter interest rate constellations that the euro area economy would face in the absence of this important policy tool,0
+many authors have argued that the institution in charge of monetary policy cannot be entrusted with supervision because the monetary policy stance would be contaminated by supervisory issues for instance the need to safeguard the liquidity of individual banks,0
+the sectors profitability subsequently declined for two consecutive years reaching 86 in 2002,0
+also taking into account the relevant horizon for monetary policy between one and two years ahead an interest rate of 2 seemed excessive also considering the downside risks to growth that the ecbs governing council had signalled and that they duly manifested themselves,0
+without our measures we would have faced a much worse growth and inflation outlook subject to significantly greater risks,0
+and the consequences in the case of central counterparties would be even more devastating than what we have seen in the banking sector,0
+as financial markets realised that the combination of high private indebtedness external imbalances and structurally weak fiscal positions was unsustainable a sudden stop occurred,0
+potential ma targets might not want to sell at what they consider a rockbottom price at the same time potential bidders might lack confidence because of their own low valuations,0
+a lack of sustainability would result in serious economic problems for the newcomer with maintaining economic and financial stability,0
+protectionist and beggarthyneighbour policies would have certainly aggravated the crisis as they notoriously did in the 1930s and yet somehow it could have been expected in such dire circumstances and given the political difficulties associated to them,0
+prospects for bank consolidation overcapacity in parts of the banking sector coupled with the ongoing structural trend towards marketbased financing imply that the european banking sector is bound to continue to shrink in the future,0
+against this background it is understandable that it sometimes appears more convenient to blame foreign speculators or global markets for all kinds of economic and social problems rather than acknowledge their domestic origin which quite often lies in unsustainable domestic economic policies and a lack of structural reforms,0
+in this regard i remember reading a few years ago in the bank of japans financial stability review that in japan credit derivatives based on loans originated by large and relatively wellcapitalised commercial banks had been acquired by small regional financial institutions with significantly weaker balance sheets,0
+in this incomplete framework national considerations inevitably continue to affect supervisory decisions,0
+from this perspective it may emerge for instance that overly stringent capital requirements may be harmful to the economy to the point of being selfdefeating,0
+with fiscal policies at best unavailable however the burden had to be borne principally by the central bank,0
+on the one hand withdrawing liquidity in such large quantities will trigger a substantial contractionary monetary policy shock,0
+in addition our monetary analysis points to upside risks to price stability,0
+those who fear the political cost of such a shift in economic policies should bear in mind that the alternative would be a fundamental revision of the current social promises and ultimately a debasing of the european model,0
+5 since that time the balance of relative price shocks as characterised above could very well have become inflationary,0
+for this reason innovative ideas to change our strategy such as targeting a price level would in fact be counterproductive in the current environment,0
+4 in fact the euro area faced an analogous situation in 2016 when the economy also went through a soft patch triggered by a contraction in world trade,0
+a slow employment adjustment by contrast will create more prolonged downward pressure on inflation which is more likely to weigh on inflation expectations,0
+looking at the period before the crisis what looked like as a large output gap in 2003 turned out to be a very small one a few years later,0
+downward swings in fair valuations of assets cause entities to sell these assets these fire sales may themselves add to further downward pressure on respective market prices,0
+first of all germany has a particularly large number of banks whose business models are very dependent on interest rates,0
+at the same time expected imbalances in publicly financed pension schemes make it plausible to consider that an increasing number of retirees would rely more on their own accumulated wealth as opposed to public pension provisions to sustain their consumption levels,0
+so for the inevitable rise in unemployment benefits if that were the case for the inevitable disappointments in tax revenue which could coincide with a slowdown in economic developments,0
+on the other hand it follows from the above considerations that the oca criteria can by no means give a definite and comprehensive answer to this question,0
+nevertheless it is also true that our models did not predict the crisis and provided only limited policy guidance when it struck,0
+this is especially important considering that food and energy prices are already exerting upward pressure on inflation in the euro area as a whole,0
+i would also like to examine another fundamental assumption of our economic models which has largely gone unchallenged or at least has been insufficiently considered in my view,0
+2  looking beyond the pandemic period the future orientation of macroeconomic policies will need to meet several challenges,0
+however the eurosystem is likely to face some criticisms of its communication policy also in the future not least because the new institutional and policy framework will sometimes be seen entirely from a national perspective,0
+as chart 3 shows insolvencies in the euro area remained at very high levels after the last downturn 200203 even after gdp already picked up,0
+another argument arises when considering the consolidated balance sheets of the government and the central bank,0
+these countries got caught in a vicious fiscalfinancial feedback loop which in the end also drags down the economy breaks up the internal market and impairs our monetary policy conduct,0
+this means that impairment allowances may increase suddenly and significantly when economic conditions deteriorate which could have certain procyclical effects,0
+they would also result in a substantial loss of welfare within the country carrying out the devaluation owing to the greater negative impact it would have via higher import prices,0
+on the other hand bad inflation acting as a tax on demand could ultimately move the economy further away from full capacity utilisation depressing mediumterm underlying inflation,0
+4 its important to stress that this second type of uncertainty lies outside the dominant macroeconomic framework,0
+one topical issue is of course whether monetary policy is contributing to weak profitability,0
+the banking sector is facing new headwinds from the war,0
+the precise link between structural reforms and current account positions is admittedly complex,0
+also the negative momentum introduced by energy prices comes at a point in time where the nonenergy factors are also drifting down,0
+with every devaluation inflationary risks rapidly appeared which required more monetary tightening than would be the case within the euro,0
+we also realise that we had expected or made this assumption already for more than a year and we have been disappointed throughout this year by actual market developments,0
+namely the inflation tradeoffs would worsen on the one hand if inflation rises as a result of costpush shocks unrelated to domestic slack then it would be more costly in terms of output loss to bring inflation down,0
+if such pessimism were to persist we would risk that low investment and high unemployment enter a feedback loop increasing the likelihood of the economy settling into a form of underemployment equilibrium,0
+this problem sharply increases the complexity of the challenges faced by supervisory and regulatory authorities while monetary authorities can be also negatively affected as they may be effectively forced to closely monitor aggregates in foreign currency dollars over which they have no direct control,0
+from the perspective of the public interest these developments pose challenges as well,0
+policy conclusions in summary and with this i would like to conclude we are confronted with an inflation outlook that will be highly volatile until well into next year,0
+obviously the way the ecb conducts monetary policy also impacts on financial stability,0
+this brings us to another problematic aspect since the links between the macroeconomic and microeconomic aspects are particularly complex and sometimes even hard to detect,0
+as i argued earlier it is impossible to evaluate the optimal riskreturn profile for a prospective retiree if one does not take into account his or her complete portfolio of assets including human capital and liabilities,0
+the central scenario is one of subdued banking sector profitability in the short to medium term for a variety of reasons,0
+the magnitude of that gap in relative prices as well as the size of the current account deficits could have  and perhaps should have  been interpreted as warnings,0
+i think within the eurozone this reflects the general lack of confidence either towards the currency or towards the policy,0
+for instance concerns have been voiced that european support to countries under stress and the conditions on which it is granted are decided only by the eurogroup ie,0
+the diverging distribution of economic and financial conditions within the euro area has mainly been exacerbated by the ailing fiscal conditions at national level,0
+faced with such an outlook it is understandable that households are anxious about their future incomes and firms are hesitant about making irreversible decisions,0
+that is safely below 2 which in my mind is in the context of the monetary policy stance as it is today and something would have to happen to the hypotheses underlying these expectations in order to come to the conclusion that another monetary policy stance would have to be called for,0
+and yet one also has to ask if a bank that cannot weather headwinds over a few years still has a sufficiently robust business model to stay in the market,0
+this view however downplayed the costpush factor which those same emerging markets could have on relative prices for example through rising demand for commodities working their way into shortrun fluctuations of headline inflation,0
+in such a scenario a ccp would certainly hold highquality collateral but it may be unable to generate cash in the market in the very short time it has to manage a default,0
+the retail banking sector in europe is suffering even more from national segmentation,0
+moreover for many of them this would have implied substantial losses because their rtgs investments were recent or even still underway and far from being recovered,0
+16 commentators have repeatedly talked about a missing disinflation at the trough of the great recession and about missing inflation in more recent years,0
+consequently the eurosystem risk profile partially shifted and increased from fx rate and gold price risk to credit risk related to domestic assets,0
+if tasks are delegated to the european level without having established an efficient supranational institution with the relevant competencies here one also needs to recall the central requirement of democratic legitimacy responsibilities become blurred and homegrown deficiencies are relegated to the background,0
+the issues of negative externalities and regulatory capture may especially generate problems when such delegation of responsibility occurs,0
+the european banking sector has undergone a phase of some structural changes over the past years,0
+these concerns were also hinted at by the shape of the str forward curve which peaked in 2024 and then inverted somewhat reflecting investors perceptions that the economy would be unable to sustain interest rates at those levels chart 17 right panel,0
+a toonarrow focus on inflation forecasts may be equally hazardous,0
+as a result europe cannot deliver effectively and european policies once again appear ineffective,0
+in this respect the realtime problem which is always prevalent in monetary analysis  but also in other types of analysis  becomes more serious in a financial crisis,0
+this brings me to the other weakness of the euro area that i should like to discuss namely the public sector,0
+indeed many european countries are currently at a crossroad faced with the option of either profoundly reforming their social security systems or putting their sustainability at risk,0
+if as some would suggest for instance in the modigliani manifesto the ecb were to directly target employment this would adversely affect the credibility of its monetary policy and thus have an impact not only on inflation but also paradoxically on employment,0
+5 not only is the analysis wrong as it has been shown by others 6 but the conclusions in terms of burden sharing are exactly the opposite,0
+the main downside risks relate to the impact of weaker than expected growth in the euro area and globally,0
+the third point is that the existence of a dual mandate is likely to reduce the transparency of monetary policy,0
+at the root of the crisis we find a combination of macroeconomic imbalances and microeconomic factors including market failures and deficiencies in the design of our regulatory and supervisory frameworks,0
+the contribution of capital markets declined substantially during the financial crisis and especially during the sovereign debt crisis,0
+believe me from my own past i know what i am talking about but this creates a risk that spending commitments simply accumulate over time without proper costbenefit analysis and prioritisation,0
+in addition threats to price stability through severe strains on governments fiscal solvency also arose in some cases,0
+on the other hand in april the other pillar the assessment of a broad range of economic indicators clearly pointed in the direction of an overwhelming downward risk to price stability,0
+15  in the ecbs case there was a particular question about whether our asset purchases would be effective in a bankbased economy,0
+fiscal imbalances can undermine the financial sector financial sector imbalances can weigh down on the credibility of the sovereign both can spillover into the real sector and vice versa,0
+the parameters according to which the analyst expresses hisher views are however not transparent,0
+in some countries balance sheet effects associated with large exchange rate depreciations posed a risk to financial stability,0
+the history of the monetary union teaches us an interesting lesson when the disciplining role of intraeuro area exchange rates was lost volatility and tensions have in fact migrated to sovereign debt markets where they were building up under the surface,0
+another important casualty would be the credibility of the ecb given that economic agents would entertain the possibility of further changes in the objective in response to future shocks,0
+in fact it is the longerterm dynamics of economic and monetary union emu which represent the great challenge for the years to come,0
+5  but i think it is fair to say that the initial restriction on lending bonds only against other securities was too penalising and is likely to have contributed to the growing specialness premium in that segment of the yield curve where the eurosystem was intervening most heavily last year,0
+the conjunctural reason is that sovereign spreads in some peripheral countries which are today the basis for the pricing of bank funding can rise above what fundamentals would suggest as they reflect various concerns felt by market participants from overpessimistic views of macroeconomic trends to redenomination risk,0
+this was visible both at the macro level in a still wide output gap and a declining rate of core inflation and at the micro level in subdued negotiated wages and low pricing power among firms,0
+in particular as the banking sector had not yet been cleaned up and strengthened lower growth produced a further deterioration in balance sheets and added to procyclicality,0
+in the long run however there is no such tradeoff because given the adjustment of inflation expectations these measures would be systematically anticipated and would thus be rendered completely ineffective,0
+however in the short run transitory shocks to monetary aggregates  such as portfolio shifts  can obscure the signals concerning future price developments stemming from the money market  as chart 15 shows,0
+the lack of fiscal discipline  and notably the lack of any clear mediumtermoriented consolidation strategies  is a factor weighing adversely on the euro areas longterm growth prospects,0
+these risks are further exacerbated by the fact that banks operating under asymmetric information and limited liability will tend to take more risk than is socially optimal since they do not internalise the losses they may eventually impose on taxpayers,0
+on the institutional side the eus fiscal framework which is embedded in the stability and growth pact and that had been watered down in 2005 proved to be too weak to enforce fiscal discipline and was not implemented with sufficient rigour,0
+empirical evidence for example points to the ongoing demographic change having a persistent disinflationary impact in the euro area and other advanced economies see left chart slide 3,0
+indeed limiting the information set to inflation and output gap forecasts can be highly misleading,0
+this may be a cause for concern considering that in some cases in the past such discrepancies were followed by significant upward revisions of the budget deficit,0
+the financial origins of the crisis explain in turn the slowness of the economic recovery,0
+13 as i have argued previously14 stablecoins raise concerns with regard to consumer protection and financial stability,0
+the financial and economic crisis has revealed structural weaknesses even more clearly,0
+one pessimistic view was that monetary union would undermine the incentives to reform as the loss of monetary policy discretion at national level would discourage the implementation of largescale reform due to the lack of macroeconomic stimulus that can facilitate them,0
+9  banking assets are however opaque which  combined with the high leverage  make recapitalisation in private markets difficult especially in crisis periods,0
+this may happen because of external constraints linked to specific business models or regulations imposed on them,0
+from this perspective one may argue that it would be premature for asian countries to take steps towards further macroeconomic surveillance in view of their current level of regional integration,0
+looking forward euro area growth is expected to remain moderate owing to ongoing balance sheet adjustments in the private sector weak prospects for the labour market and low capacity utilisation,0
+uncertainty is partially being driven by concerns over the structure of the economy after the crisis especially in such vulnerable sectors as tourism entertainment or transportation,0
+this is the it was mostly fiscal narrative which can be easily connected to two of the others fiscal indiscipline led to economic overheating wage and price increases implied loss of competitiveness and this then led to the balance of payment crises,0
+from a medium and longterm perspective we must not forget the additional challenge to sound public finances posed by the phenomenon of population ageing,0
+indeed a commitment to ex ante coordination between fiscal and monetary policies may blur the responsibilities of the various authorities at the expense of accountability and may ultimately reduce their incentives to pursue their objectives,0
+the large profit outflows in the factor income account in ireland negatively affect the current account position,0
+this has not only brought the risk of reversal as seen after 2008 when private capital inflows dried up and domestic demand collapsed it has also led to economic divergence within the euro area,0
+in addition the macroeconomic outlook is surrounded by exceptionally high uncertainty with risks to economic growth on the downside and risks to inflation clearly on the upside,0
+credit conditions tightened feeding back into weak domestic demand and threatening the economy with persistent disinflationary forces,0
+i do understand your ambition to combat inflation but im more concerned at the moment about the point of view of the employees and the possible cooling down of the economy and the policy of the ecb thats linked to that,0
+at the same time it may possibly disintermediate or even make redundant some market actors that do not provide core functions,0
+in this context the ecb is observing with concern the recent trends in fiscal developments in a number of member states as well as in the euro area as a whole,0
+i have already mentioned in my intervention how the financial crisis has blatantly revealed the flaws with this measurement and how in certain circumstances namely when markets are dislocated applying full fair value accounting to the financial statements of the banking sector raises financial stability concerns and does not provide decisionuseful information to investors,0
+for instance ageing will not only put pressure on public finances by driving up ageingrelated expenditure but will most certainly also bring down the potential growth rate of europe if no reforms take place,0
+if one takes current surveys of market participants views about the time over which the ecb is anticipated to roll over its app securities and assumes the modal expectation of a twoyear period one finds that the downward pressure that app asset holdings  current and expected  are exerting on longerterm interest rates is in the order of 100 basis points chart 5,0
+instead profit markups will rise and the purchasing power of households will fall thereby worsening the economic conditions of consumers and aggravating any recession,0
+the nature of mathematical economic models enhances this pseudodifference as they feed the confusion between logical time longterm in the models only means a logical interval until the final equilibrium and the chronological time that we face in policymaking,0
+however the remaining concern is that the framework may not be appropriate to deal with general financial crises like the one we just had when the problem is the existence of toomanytofail banks,0
+while this might be a natural corollary of the protracted period of low inflation it may also be a matter of concern if it indicates complacency over future adjustments,0
+furthermore the monetary analysis continued to point towards increasing upside risks to price stability over the medium to longer term,0
+however the benefits from expansionary policies in a recession must still be assessed against the risks to longterm sustainability or the persistent adverse effects on the structure of public finances such as a permanently higher tax level as well as the economic costs of an eventual policy reversal,0
+in this case the country in question could face the risk of excessive output and inflation volatility as it would lack important tools to stabilise economic conditions at home,0
+however the crises of the last few years have also pushed monetary policy into uncharted territory,0
+banks remained dependent on fiscal authorities for solvency assistance and the financial obligations visàvis banks that this responsibility created on the side of some national fiscal authorities with weak fundamentals further undermined their credit standing,0
+persistent losses in relative cost competitiveness for instance can also relate to a number of structural rigidities leading to inertia in price and wage formation,0
+japan has the problem that they have to make large internal changes which are outside the central bank but for example in their case in the banking system but also in the economic system,0
+14 nominal gdp growth targeting is different from nominal gdp level targeting  as with inflation targeting past outcomes are not taken into account,0
+indeed for the first time in a number of projection rounds the march staff projection exercise had downgraded the inflation outlook uniformly throughout the horizon including at the end point,0
+on the other hand they can have a negative impact on the incomes of households and the earnings of companies thereby reducing economic activity and dampening the inflation outlook,0
+noneuro area investors have also been a driving force behind the overall net outflows in portfolio investment though net sales of euro area government debt securities chart 13,0
+procyclicality can stem not only from unsatisfactory regulatory policies in the financial sphere but also from macroeconomic policies where it is equally undesirable,0
+not only do banks in the affected countries often need to deleverage more than others but also their portfolios consist of less liquid assets such as domestic sovereign bonds and they face ceteris paribus higher funding costs than their peers in other euro area countries,0
+failing to meet their commitments may expose these banks to a number of risks including reputational risks as well as any potential prudential risks of misalignment with these objectives,0
+on the one hand you have those who think that insufficient growth is the result of insufficient economic policy coordination at european level,0
+the latest forecasts from european commission published in early may 2010 show that between 2008 and 2010 the general government deficit for the euro area as a whole increased from 20 of gdp to 66 of gdp,0
+to begin with the reform process had to start in an environment where fiscal policies had by necessity to become contractionary,0
+the impact of the deposit facility rate dfr cut rests on the announcement effects of the september 2014 dfr cut while the impact of the subsequent dfr cuts is difficult to disentangle from the simultaneous app adjustments,0
+on the other hand the new framework may lead down the road to a period of consolidation in a not much concentrated european banking sector,0
+however the countryspecific reform recommendations as just indicated by the commission have so far hardly or not at all been acted upon by member states,0
+the magnitude of this imbalance has grown to worrying proportions in recent years with the us current account deficit and corresponding capital flows reaching around usd 700800 billion in 2005 more than 6 of us gdp,0
+raising this issue may seem surprising given the cyclical behaviour of economic activity over the last three years in europe and globally,0
+on top of that many euro area constituencies are facing a dilemma because they do not know whether to wait for a paneuropean scheme or to develop a national scheme themselves,0
+13 the scope and limits for central banks to control leveraging cycles let me describe how these complications played out in the current crisis,0
+during the years leading up to emu indeed several commentators offered gloomy projections on the viability of the common currency with the range of predictions going from the swift breakup of the monetary union in the face of the first breeze to the possibility that emu might even lead to conflicts among member states,0
+on one hand raw materials and basic commodities most importantly oil and other sources of energy have become scarcer relative to world demand leading to substantial upward pressure on prices,0
+but having no discretion is also not optimal as circumstances will always arise that the rules did not foresee,0
+in particular the question has been raised as to whether implementing structural reforms when the economy is still weak would be counterproductive in the sense that it would make it harder to achieve our mandate by further reducing shortterm demand,0
+1  for example many of our key monetary policy counterparties in the euro area are participants in ccps around the world and are thus directly exposed to potential strains in centrally cleared markets,0
+focusing on its value over the longer run it is found to have steadily declined due to structural forces on the one hand and to cyclical factors on the other,0
+finally it is worth keeping in mind that the reported shares are influenced by valuation effects,0
+on the other hand the problems in the banking sector in some countries posed a heavy burden on the national budget,0
+one has to bear in mind that deficits are mainly structural and that expenditure pressures are expected to mount over the next few years not least due to eu accession,0
+the economic outlook at the time was marked by the risk of a further recession and potentially even deflation  a combination that would likely have resulted in worse outcomes for financial stability,0
+imrohoroglu 1992 suggest that the traditional approach ignores certain welfare losses individual agents cannot always find work and they cannot insure themselves completely against the loss of income since work opportunities are idiosyncratic they therefore carry real balances to allow them to consume when they cannot work inflation forces individuals to economise on real money balances and therefore undermines the ability of workers to smooth consumption over time  an effect on welfare not picked up by previous approaches,0
+draghi we discuss these issues nowadays quite frequently in the governing council when we ask ourselves what are the risks that we look at or how will the eurozone grow in the future things are ok now but what could threaten the sense of finally having come out the big depression the big recession,0
+what is missing in my view is some deeper thinking about why policymakers and economic agents more generally took inappropriate decisions,0
+11  but until this happens  and the pace will depend a lot on our broader economic policy framework which i wont discuss this morning12  central banks are likely to have to navigate in a lowgrowth lowinflation environment with the risk of repeatedly failing to deliver inflation in line with their aim,0
+the recent softening of the macroeconomic growth outlook and the associated lowforlonger interest rate environment are likely to weigh further on their profitability prospects,0
+in particular adverse spillover effects arise if any member country has an unsustainable fiscal position operates a procyclical fiscal policy or reduces potential output through structural policies that are antigrowth,0
+in the short term the structural adaptation process could be made more difficult by the combination of factors like the protracted financial difficulties of asia and russia or the preparations for the year 2000,0
+11 many market commentaries also considered that the speech by ecb president mario draghi in august 2014 in jackson hole provided signals that the ecb was considering purchases of sovereign bonds in response to a destabilisation of mediumterm inflation expectations,0
+on the asset side the flattening of the term structure of interest rates seems to have exerted strong downward pressure on bank lending rates especially in countries that were more affected by the sovereign debt crisis,0
+as i have discussed before an abrupt unwinding of these searchesforyield  perhaps triggered by highly leveraged investors rushing for the exit  would be a source of concern for financial stability,0
+however corporates are also large depositors in the banking system and they face the same low real deposit rates as households,0
+if fiscal policy is forced to contract when it is needed to smooth the cycle then obviously this will reduce aggregate demand,0
+4  the experience of the crisis also suggests that most investors hugely underestimated the risks of the most complex financial instruments,0
+a second complication associated with unconventional policies is that the public inevitably knows less about their transmission channels and effects,0
+looking beyond cyclical challenges euro area banks profitability prospects are further hindered by ongoing structural problems,0
+some people have argued within the framework of dynamic general equilibrium models that in the presence of nominal rigidities imperfect competition and the possibility of nonfundamental asset price movements affecting capital investment via tobins q the central bank would face a trade off between an inflation distortion and an investment distortion,0
+2  that was when the doom loop between weak sovereigns and weak banks took hold to full effect and when the flaws in the design of economic and monetary union emu became most damaging,0
+the depth and length of the euro area crisis unveiled inter alia the incompleteness of the euro areas institutional design,0
+also for the ecb both the increase in the international role of the euro in some market segments mainly debt securities and the stagnation of the euros share in international world reserves are largely exogenous factors,0
+nonetheless the proposition that the ecb should preemptively resolve financial stability issues with monetary policy tools at the expense of delivering on the mandate of price stability is both wrong and very hazardous,0
+but as you can see on the following one financial market participants repeatedly failed to correctly project even the very nearterm outlook for inflation in the euro area,0
+there are some concerns that nonstandard policies would not gain enough traction on domestic aggregate demand because of deleveraging by domestic agents including banks,0
+this would mean the double challenge of increased investments and decreased revenues for banks,0
+second a signalling effect may amplify this downward pressure as market participants would see a realisation of a completely new scenario which they had previously priced in as a mere possibility,0
+monetary policy making in the run up to the crisis was too complacent to macroeconomic stability lacked sufficient mediumterm orientation and underappreciated the role of monetary and credit dynamics in monetary frameworks also in view of identifying financial imbalances and globally interconnected risks,0
+at the same time many other factors relating to legacy and structural problems hold down bank profitability,0
+this would especially be the case were they to spill over into inflation expectations by the public leading to their unanchoring,0
+the continued weakness in bank profitability reflects a number of factors including both cyclical and structural challenges,0
+finally let me mention a further challenge that we currently face which is the budgetary position in a number of european countries,0
+this could happen to such a point where other firms holding important risk concentrations in the same markets would also incur major losses and even face the risk of insolvency,0
+also we need a common energy policy which we have not got and there is the crucial question we have already mentioned of coordinated government control of american debt visàvis foreign investors,0
+for example a further cut in our main policy rate  the deposit facility rate  would have been unlikely to support sentiment and market functioning at a time when banks profitability was already expected to come under additional pressure due to the crisis,0
+second the banking supervisor may want to send an unviable bank into resolution which has large amounts of outstanding central bank borrowings,0
+the fact that regulators gave ratings a prominent role in the risk assessment framework might have indirectly affected investors incentives,0
+second as i have said i regard the use of a fixed forecast and policy horizon as somewhat arbitrary in the presence of large macroeconomic shocks of different kinds,0
+the expected slowdown in profit growth is a consequence of possible further valuation losses increased funding costs as well as declining noninterest income from securitisation and capital market activities,0
+disparate national practices not only add to the burden they also obstruct integrated solutions in product development and risk management as well as supervisory reporting,0
+in particular some observers considered the continuing existence of autonomous national fiscal policies as incompatible with a supranational monetary policy,0
+we face an outlook of ageing populations high savings persisting weak investment increasingly interlinked economies at the global level and potentially lower real equilibrium interest rates,0
+in the case of the latter the reputation and credibility of the central bank will suffer its communication will be ineffective,0
+if the escb were to publish a projection based on the assumption of unchanged interest rates then when inflationary or deflationary pressures arose the projection might be interpreted as suggesting that price stability is actually in jeopardy,0
+and thats particularly the case in a postdebt crisis environment like the one we face in the euro area today,0
+following strong economic growth in the first quarter economic conditions worsened progressively especially after the extraordinary intensification of the financial turmoil in september,0
+as a result a vicious cycle can emerge where higher margins and haircuts force deleveraging and more sales generating a liquidity spiral,0
+while my comments so far about technical progress in aggregate reflect a perennial challenge for central banks current technological progress poses a particularly acute challenge because of its direct impact on the pricesetting behaviour by businesses that underlies the inflationary process,0
+first we saw impairments to the traditional intertemporal arbitrage mechanism which has curtailed the effectiveness of our standard monetary policy,0
+these difficulties become even more challenging when considering financial instruments issued by the private sector such as equities,0
+here too longerterm forces have mingled with more cyclical dynamics connected to the financial crisis to push nominal interest rates down,0
+for some time there have been indications that the monetary growth figures are distorted upwards by noneuro area residents purchases of negotiable paper included in m3,0
+it is clear that downside risks to the economy have increased,0
+the sharp falloff in oil prices that began in the late summer added then further disinflationary pressures feeding also into core inflation,0
+but within this framework there are substantial national differences such as regarding the extent to which various stakeholders are protected in the event of an insolvency,0
+analysing the tail risk of portfolios the authors conclude that the rebalanced and current portfolios show similar levels of tail risk both for single countries and for the eu banking system which means that rebalancing portfolios to increase diversification may be inefficient even when correlation between sovereigns defaults is higher as during a crisis  a last aspect to underline is that no country can reduce the accumulated stock of debt in a few years and has to ensure its annual rollover needs naturally having to heavily rely on the holders of the redeemed debt,0
+however the number of monetary union supporters has meanwhile returned close to its precrisis level,0
+reinforcing these cautionary signals the bls also shows that the scaling back of investment plans has been an important source of the decline in credit demand over the last quarters,0
+the macroeconomic implications of deflation are well known,0
+the decline was especially marked for homeowners with mortgages for whom it amounted to as much as around 20 percent,0
+this is because in the programme context national authorities face a substantial loss of sovereignty with regard to economic policy,0
+of course these costs have to be weighed against the need for exceptional monetary policy measures in a crisis,0
+here i only mention the moral hazard problems and possible indeterminacy of inflation such a policy would foster,0
+and moreover the precrisis slowdown in potential growth coupled with the negative effects of the crisis on investment and private sector balance sheets appeared to have imbalanced saving and investment and depressed the real equilibrium interest rate to very low levels,0
+this is compounded if a prolonged period of low inflation also erodes inflation expectations since a persistent fall in inflation expectations itself further reduces the available policy space through the associated downward pressure on the yield curve,0
+23 this might be particularly relevant in circumstances when importing deflation might create risks to price stability over the medium term,0
+the effects of a crash could be further magnified if vc investors were highly leveraged4,0
+there is still a notable omission in that equity issues are not covered mainly because of valuation problems,0
+6  it is important to remember that a steeper phillips curve is a curse for inflation stability on the way down when cyclical unemployment is on the rise,0
+complex and partially unclear insolvency proceedings may for instance have the effect of deterring investment,0
+but successive currency crises in particular a revaluation of the dm and a devaluation of the french franc in 1969 jeopardised trust in the market as the farmers affected demanded compensation for their losses,0
+the second concern can be formulated in terms of the question will omts bring large risks to the central banks balance sheet,0
+those policy prescriptions are not only about austerity which gives them a negative connotation,0
+but it essentially delinked from credit creation which instead became increasingly weak with annual loan growth to the private sector turning negative over the course of the year to stand at 02 in december,0
+worse monetary policy can quickly become overburdened if national fiscal and economic policies fail to internalise the effects they have on the common currency,0
+euro area developments and outlook  in the euro area incoming economic data particularly recent survey results have started to show unprecedented falls pointing to a large contraction in output in the euro area as well as to rapidly deteriorating labour markets,0
+taking into account all these factors it was clear that the slowdown in m3 over the past few months was more pronounced than expected with estimates of corrected m3 growth at or even below the reference value of 4 12 for some months now,0
+from an economic perspective it would seem obvious if a state gets into financial difficulty why shouldnt the states creditors bear the losses,0
+in addition the statistical base on which monetary authorities had to base their assessment of the state of the economy at that time was thin,0
+in addition to these secular forces more cyclical factors linked to the financial crisis have been a drag on real interest rates,0
+the ways in which persistently large fiscal imbalances can pose risks for financial stability are manifold with some of them propagating through real economy channels and others through financial markets and institutions,0
+the march 2022 ecb staff macroeconomic projections included adverse and severe scenarios in addition to the baseline projections in recognition of the highlyuncertain impact of the war on the euro area economy and the inflation outlook,0
+the first is that the accumulation of economic slack due to the recession may exacerbate downside risks to price developments which in turn may lead to outright deflation as monetary policy loses traction in stabilising output,0
+on the other hand given that supervisory powers are closer to the political authorities and that ultimately taxpayers may step in to prop up a failing bank the governing body of the institution conducting both monetary policy and prudential supervision would risk being more exposed to political pressures,0
+it is true that the cyclical positions of the participating countries have not completely converged in real terms,0
+the second factor is the corresponding policy stance and its transmission lags into demand and inflation,0
+however if we examine these instruments one by one we will find that the euro area is still far from being a domestic payment area,0
+however many do not understand why too low inflation may also pose risks to price stability,0
+under current conditions the reserve assets of the stablecoin issuers would be remunerated negatively7 so noninterestbearing stablecoins would hardly be viable unless they were subsidised by the issuer,0
+9  as a result current carbon prices do not yet serve as a proper corrective device including in financial markets,0
+this loop was a source of vulnerability for the euro area for two reasons first any impairment of the banking sectors liabilities  including capital  challenged fiscal sustainability in the eyes of investors and second the value of bonds held as bank assets shrank as their market value eroded,0
+paradoxically in a large number of cases the credit risk remained in the realm of the commercial banks through the commitment they still had to activate back up lines of conduits or structured investment vehicles,0
+if we think about how such a system would have worked prior to the crisis we would get to the conclusion that it would have made the divergences between countries more acute than those we have actually seen within the euro area,0
+domestic demand is dampened by still weak consumer and investor sentiment and the ongoing balance sheet adjustments in the banking and business sectors which continue to weigh on investment decisions,0
+as the money multiplier shrinks fisherian deflation sets in worsening the debt burden of borrowers and hence further amplifying the contraction,0
+the second explanation is that the pandemic and the war could have triggered or accelerated structural changes  such as deglobalisation or a more costly energy mix  which have permanently lowered potential output,0
+this brings me to the public finances which are of course acutely affected by demographic trends,0
+in addition derivatives positions in particular can embed sizeable leverage potentially adding to deleveraging pressures when financial stress emerges,0
+in the financial markets an increase in inflation expectations would lead to a higher longterm interest rate possibly also in real terms which would discourage investment  precisely what the monetary easing did not intend to achieve,0
+if domestic policymakers and other economic actors delay necessary reforms because they can count on the central bank to provide support whenever market conditions deteriorate monetary policy may become insufficiently effective as well as biased towards the short term,0
+the problem is that there is no common european fiscal policy which is also not foreseen in the treaty,0
+doubts on this ability for instance due to concerns on the fiscal health of the sovereign could easily reinforce local bank runs,0
+internalisation of monetary policy  my first observation concerns the move from small or mediumsized open economies which used to be the case in all european economies to a large fairly closed economy  which is the current situation in the euro area,0
+another important aspect in the medium term is the exit from the government support measures including budgetary and financial policies,0
+however this lag structure implied by the model  where changes to the inflation objective precede changes in inflation which in turn precede changes in money growth  is at odds with the empirical evidence,0
+figure 2  each inflation dip had different origins the first was mainly due to external factors falling energy and food prices while the second was driven more by domestic sources in an environment of weak demand,0
+there are of course downside risks to government budgets but there are also upside risks suggesting that the net effect on the longterm sustainability of public finances could be very limited,0
+the first observation is that the external assets and liabilities of the euro area as a percentage of gdp are very large and account for around 124 and 137 respectively,0
+3  these observations raise some questions why did this period see such an undifferentiated pricing of government debt securities,0
+10  macroeconomic stabilisation in the future both facilities however are temporary and linked to the pandemic while the effective lower bound is likely to remain a recurring constraint in the future,0
+in monetary unions this is even more the case because countries share their monetary sovereignty and lack the possibility to manoeuvre the nominal exchange rate to correct internal and external imbalances,0
+mr donnelly well you see thats not really the question i put to you because as we know the japanese started reducing their interest rates too late,0
+this will be all the more true if the deterioration in the economic situation this year is worse than expected owing to the negative aspects of the external economic environment,0
+and the second was the fact that in parallel and independent of the monetary policy stance the inflation outlook for the euro area had further deteriorated towards the end of the year,0
+overall the constant stream of missed targets and data revisions saps at euro area confidence,0
+at the same time low passthrough may exacerbate real exchange rate volatility as relative prices adjust less strongly thereby failing to dampen movements in the nominal exchange rate,0
+in that year the signals from the economic analysis remained rather mixed and our monetary analysis was indicating upward risks to price stability,0
+moreover when the risks finally materialised the fragmented crisis management arrangements led to policy responses that were rational from a national perspective but suboptimal from a european point of view,0
+it cannot be excluded that this process of rebalancing might be nonlinear with episodes of discontinuity perhaps also including economic and financial crises somewhere down the line,0
+4  a third potentially problematic dimension of adjustment is related to incentives to increase concentration to reduce costs which can bring with it financial stability concerns,0
+but these narrow conditions have led to a controversial reception of the theory in the profession  after all we can all cite examples where countries have defaulted outright rather than implicitly through price level adjustments,0
+this might weigh on inflation down the line as it does not fully arise from stronger euro area fundamentals,0
+3 in the heat of a financial crisis this will undoubtedly be impossible,0
+this opens the door to shifting the blame for unpopular measures to the eu when in fact it does not effectively have the power to adopt policies,0
+not only would the resultant wageprice spirals prove selfdefeating in supporting real incomes economywide but it would also hamper the productive capacity of the economy as a whole,0
+in the euro area until recently real growth and inflation were too low to foster macroeconomic deleveraging so balance sheet repair had to take place through the more painful channel conflicting with the objective of macroeconomic stabilisation,0
+taking a broader view the economic recession amplified imbalances in fiscal policies that had built up gradually long before the crisis,0
+thus discretionary fiscal policies have frequently been procyclical overriding automatic stabilisers and possibly contributing to economic instability,0
+accordingly headline inflation began to drift downwards owing both to global energy and commodity price developments and to ongoing weakness in the core components,0
+it has to be taken into account that a number of these measures  particularly those stemming from the breakeven inflation rates extracted from the indexed bonds  remain imperfect indicators of inflation expectations as several premia most importantly an inflation risk premium but also a liquidity premium are potentially embodied in their calculation,0
+one can easily see how this genre of policies would confront doctrinal refusal,0
+but monetary policy cannot address the more profound questions about how the economy will look in the future,0
+years of repeated overprediction of the future path of inflation require that higher inflation prospects need to visibly migrate into the baseline scenario and be reflected in actual underlying inflation dynamics in line with our forward guidance before they warrant a more fundamental reassessment of the mediumterm inflation outlook,0
+this was exacerbated by the development of increasingly complex financial products which made it difficult for investors to assess the quality of the underlying assets,0
+however looking only at the aggregate data for the euro area as a whole also has its limitations and average figures can conceal significant differences in performance,0
+there are four key questions that should be addressed regarding this matter    are growth and inflation divergences a real problem in a monetary union,0
+at the current juncture the main challenge for bulgaria with regard to nominal convergence will be price stability,0
+in a few extreme cases the shareholders of some institutions and the public at large suddenly realised looking at the balance sheet that on the left side nothing was right and on the right side nothing was left,0
+in my opinion these views are to a large extent misleading and they do not take all the underlying factors into account,0
+in the case of financial institutions these exposures are reflected in their investment portfolios eg,0
+on the other hand the stubbornly persistent rate of inflation excluding the volatile components of energy and food prices as well as monetary and wage trends argued for caution,0
+in such an environment it will be more difficult for us as a central bank to explain our monetary policy decisions particularly if some groups feel discriminated against by our decisions such as savers in germany,0
+far from being a straightjacket on national policymakers these rules derive from the experience accumulated in past decades showing that increased debt ratios  as well as the implicit debt associated with social security systems in ageing societies  cast a permanent shadow over long term output growth and constantly limit the scope for fiscal policy to act as a stabilising instrument,0
+finally from an institutional point of view there were doubts whether the presidents and national central bank governors in the governing council of the ecb would be able to act in a truly european spirit rather than in the national interests of their respective countries,0
+clearly as the sovereign crisis intensified it impeded banks support for the real economy,0
+one possibility is that distorted incentives  deriving from the increasingly higher payoff coupled with limited downside risks  may lead managers to take hidden tail risks,0
+as a result of these developments advanced industrial economies are experiencing the uncomfortable combination of weakening economic growth and increasing inflationary pressure,0
+the second risk is a related one in that these factors could have already unwound and inflation could turn out much higher than we expect over the course of 2018,0
+in the event of an abrupt reversal of sentiment however dependence on external financing may quickly turn out to be a source of crisis especially as large imports of capital are always accompanied by corresponding deficits on current account,0
+similarly and as i argued recently hysteresis effects  should they materialise and the jury is still out on this  have the unfortunate consequence of locking in crisisrelated income losses and may result in higher rather than lower inflationary pressures,0
+this process may have financial implications if impaired assets have to be written down,0
+the federal reserves datebased guidance issued in 2011 was of more conventional nature as it was used in the face of increasing downside risks to the economic outlook,0
+business environment the business environment confronting the european financial sector today is evidently challenging,0
+risks of fragmentation this brings me to my third consideration  the question as to whether and how changes in sovereign bond market conditions could challenge our sequencing,0
+so i have a question does this mean that when it comes to the real economy and those who are responsible for the real economy the finance ministers are there more causes for concern than you might have focusing on purely monetary issues,0
+as a consequence the argument  which is sometimes elevated to the standard of a moral obligation  that european policymakers should forego important domestic policy goals is untenable,0
+since autumn 2008 the ecb has been confronted with various episodes of downside risks to price stability,0
+turning to recent monetary developments there were already indications in november 2000 that a moderation in monetary growth had been under way for some months,0
+however in other countries the current fiscal outlook suggests a shortfall in terms of the required structural improvement in public finances,0
+while the reasons for this limited passthrough have yet to be fully explained a contributing factor is the weakness in the manufacturing sector as reflected by weaker supply chain price pressures compared with the services sector,0
+first if the own funds supporting the securities business are separated from the customer funds the risks are directly borne by investors,0
+moreover the economic logic of the anglosaxon qe programmes cannot be applied one to one to a bankfinanced economic system like that of the euro area,0
+the third one is that the aggregate euro area picture is misleading because important differences exist across countries,0
+the duration of the downturn has also itself exacerbated the damage to output,0
+the fiscal component of sound finances failings in national governance caused severe fiscal strains in quite a number of euro area countries while at the same time european governance lacked teeth,0
+6 one example of this phenomenon during the crisis was the decision of several national authorities to merge failing banks with other domestic banks rather than resolve them which probably increased concentration,0
+my point is rather that while the ongoing deleveraging in the banking sector certainly plays an important role in the inadequate current levels of credit supply to the real economy factors related to the demand side may play an even more important role,0
+in fact financial institutions themselves seem to have had at some point little knowledge about their own situation and the assumptions underlying their own disclosures have not always been fully transparent,0
+their financing as well the deterioration of budgetary balances due to the operation of the automatic stabilisers in the wake of the economic downturn and the aforementioned bank support measures imply that the fiscal deficit for the euro area as a whole will surge from 19 of gdp in 2008 to 53 in 2009 and further to 65 in 2010,0
+this risk would be higher for small countries with unstable currencies and weak fundamentals especially if the cbdc were issued in a major economy,0
+monetary policy measures tightening financial conditions combined with an outlook for price stability that had significantly worsened due to the economic fallout of the covid19 crisis prompted the ecbs governing council to take further policy action at its june policy meeting,0
+in particular any central bank with a dual mandate would have difficulties in clearly specifying the objective for price stability in quantitative terms without also having to specify an objective for employment or growth,0
+of course we have to try to simplify our messages sometimes but a mechanistic approach to monetary policy implementation is not wise under any circumstances and particularly not in the new environment of a single monetary policy of 11 soon 12 countries,0
+finally a potential risk for the individual country relates to a possible lack of flexibility in the economy,0
+yet the mediumterm orientation also reflects the existence of economic shocks the consequences of which monetary policy cannot control without inducing excessively high variability in real activity and interest rates,0
+accordingly the eonia forward curve has shifted down substantially over recent months see chart 3,0
+for sovereign yields the drop over this period was even more pronounced amounting to around one percentage point for maturities at or above ten years,0
+some scholars have for example linked the great inflation seen in the 1970s to policymakers misinterpretation of changes in the economys rate of productivity growth,0
+if you look at export figures in principle this exchange rate does not seem to be right for the economy,0
+an undervalued exchange rate can also pose a negative externality to producers in other countries,0
+however especially as portrayed in the academic literature inflation targeting is also often seen to entail specific procedures or policy rules for interest rate setting eg,0
+on the one hand the zero lower bound to nominal interest rates constrains monetary policy on the other hand after governments have absorbed the liabilities of the private sector following the bursting of the bubble and public debts have swollen the room for expansionary fiscal policies is severely limited,0
+the chart shows the sharp deterioration in the inflation outlook following the pandemic shock with the endofhorizon projection for hicp dropping to 13 per cent in the june 2020 forecast,0
+indeed during the current crisis we have learned the hard way that those forgotten risks which were perceived as not deserving a single slide in many presentations of the past matter more than we previously thought,0
+in europe we have the additional complication that the debate takes place not only within countries but also between countries in the open,0
+these apparent policy dilemmas were exacerbated as markets began to doubt the credibility of the parities,0
+let me now turn to the euro area and consider the third argument which is sometimes made by market participants namely that euro area governance has substantial weaknesses that undermine the viability of the single currency,0
+i think it is inevitable that this will affect the nature of the dialogue,0
+12  the third important factor is weakness in domestic demand,0
+however very few banks back then had actually begun to implement these practices and we made them aware of this gap with regards to our supervisory expectations,0
+or must the status quo be considered to be so fragile due to the asymmetry mentioned earlier between the monetary economic and the political dimension that the eu itself could eventually be threatened without the completion of political unity,0
+if monetary policy were instead to be called upon to serve a multitude of  usually competing  goals the status of independence would be much harder to justify and the related accountability difficult to achieve,0
+the disclosure of their fullyear 2007 financial results revealed that the subprimerelated turmoil has had a material impact on their profitability,0
+fourth i will draw upon forwardlooking solvency analysis results published in the ecbs most recent financial stability review to discuss some of the consequences of various risks related to a reemergence of risk aversion in several market segments,0
+although such a euro area stance is prevailing the contribution of individual member states to the aggregate outcome is suboptimal,0
+second as the bank for international settlements warned in its 2008 annual report 2 the largescale intermediation of ailing capital markets by the central bank may create price distortions in the longer term,0
+6  at the current juncture an important element in determining the appropriate length of the medium term is the risk of secondround effects that may entrench expectations of low inflation and thereby leave permanent scars on the euro area economy,0
+i would simply add  as i have done on several occasions in the past  that our interpretation of monetary developments is currently further complicated by the uncertainties surrounding the data itself that i alluded to a moment ago,0
+   some economists have argued that our monetary policy is too judgemental seemingly discretionary and difficult to explain,0
+nevertheless the external net liability position of the banking sectors of most central and eastern european countries continues to be limited with the exception of estonia and latvia where the external net liability positions reached levels corresponding to 23 and 17 of gdp respectively at the end of 2004,0
+also europe had to learn the hard way that loose policies and large imbalances also in the private sector rather than only the public sector may have severe implications for public sector budgets and risk systemic crises,0
+in the short term given that financial markets are characterized by information asymmetries and frictions the new regulatory requirements will most likely imply some transitional costs on the economy through tighter credit conditions,0
+what concerns us most is the potential impact on financial stability,0
+nevertheless risks to the sustainability of external positions may emerge if the convergence of relative price and wage levels with those of the eu proceeds too quickly,0
+interestingly the historical chapters omit two important episodes which have also had political consequences even in a country like the uk which is outside the euro area,0
+on the other hand the failure of the strategy pursued in recent years of trying to convince our partners that this area should be regulated like any other has necessitated a turnaround of the basis of the discussion,0
+when looking at these market prices one has to bear in mind that the spread between these nominal and real yields not only measures market participants inflation expectations but also carries the inflation uncertainty risk premium which investors require as compensation for the risk of a loss in purchasing power,0
+worse there is hardly a single european public discourse in which the common monetary policy can be communicated,0
+macroeconomic policies would be illadvised if they followed suit and likewise adopted a shortterm horizon,0
+otherwise debtfinanced fiscal policy will in fact be destabilising since it will depress sovereign bond prices and trigger ratings downgrades feeding back into the financial system through the channels i already described,0
+at the same time downside risks relate in particular to a renewed intensification of tensions in euro area sovereign debt markets and their potential spillover to the real economy,0
+or what if the slowing emerging economy causes a collapse in the demand for commodities how would this affect internal portfolios,0
+first there is always the possibility of hitting the limit where the preference for cash withdrawals would set in even if the threshold seems to be significantly distant in view of the costs of cash storage safety and insurance21,0
+the uk case from 1918 to 1933 failed because both fiscal and monetary policy stances were too tight,0
+in this case the exchange rate objective could conflict with the price stability concept and the ecb would then fail in its primary objective,0
+the national supervisory bodies were therefore faced with the problem of having to assess circumstances on the basis of just one bank or on that of a very small group of banks,0
+let me point out three key weaknesses     first the ability of investors to assess the extent of concentrations among various types of collateral  including subprime  within the structured finance securities has clearly been shown to be less than adequate,0
+and last but not least the retail banking sector too is very much affected by the introduction of the euro,0
+however the implication of the literature would be to use capital controls among advanced economies an option that stands out as unrealistic for political and ideological reasons,0
+looking ahead the mediumterm inflation outlook presents clear upside risks in a general context of extraordinary uncertainty about the future evolution of the european economy,0
+i am of course aware of the view that in current circumstances structural reforms that expand supply capacity could have contractionary short run effects,0
+1  instead phillips curve models point to other factors putting persistent downward pressure on underlying inflation in recent years see right chart slide 4,0
+but the decision of the eurosystem not to go the route of purchasing government bonds also reflected a number of additional considerations of which i would like to stress four in particular,0
+dangerous feedback effects between local banking systems and sovereigns which emerged after the start of the financial crisis also served to weaken the fiscal accounts,0
+turning to the monetary analysis this confirms the prevailing upside risks to price stability at medium to longer horizons,0
+on the one hand the sensitivity of public finances to future corporate and financial sector developments has increased beyond the traditional impact of automatic stabilisers during a recession such as lower tax revenues and higher social security expenses,0
+the crisis has shown that bank resolution and restructuring are more complicated for crossborder institutions given that any fiscal costs have to be distributed across several host sovereigns,0
+first in the euro area there are multiple fiscal authorities so predicting the future stance of fiscal policy and correctly factoring this into monetary policy decisions is not a straightforward task,0
+thus from a pure accounting perspective the us fiscal deficit seems to be a key contributor to the persistent us current account deficit,0
+as regards private saving its decline has been mainly due to a drop in net household savings that in the course of 2005  for the first time since the 1930s  fell into negative territory,0
+as a result the central banks balance sheet would decline automatically as demand for its funds decreases,0
+from this point of view delaying the adoption of a single currency until all the conditions identified by the theory are entirely met ex ante  knowing that they will be met ex post in any case  could be seen as suboptimal in itself,0
+such developments  by construction neglected in the benchmark model lacking a financial sector  may have a macroeconomic impact and ultimately undesirable consequences for both financial and price stability,0
+declining savings in the united states  a natural place to start to answer this question is obviously the us where the increasing current account deficits seem to be due to a combination of factors,0
+in principle such effects should normally be more substantial in the north however in the south the absence of risk sharing mechanisms due to market incompleteness and possibly also higher intrinsic risk aversion could make second order effects loom even larger as we will see in a moment,0
+the key point to note is that households with lower income are at any point in time substantially more likely to be unemployed and that their employment status also tends to react more significantly to monetary policy impulses,0
+at the same time there is evidence that redemption patterns can be procyclical which can foster adverse market dynamics when asset prices are declining,0
+fiscal policies have also lost effectiveness,0
+this model was only able to develop because of the perception of an implicit state guarantee for bank debt  a perception that reinforced the link between sovereign and bank risks that i described above,0
+in sum it seems that it was not only the general design of the mainstream precrisis models that made them inadequate for interpreting the crisis but also the fact that they relied on data mostly drawn from the time of the great moderation,0
+the causes of low profitability are for the most part structural and hence require structural solutions,0
+while estimates of the impact of a change in the age structure of the population on private savings have to be treated with caution their order of magnitude clearly shows that population ageing will tend to dampen savings,0
+a second concern may be related to accounting and regulatory arbitrage between the two subcomponents of the conglomerate,0
+similarly inadequate information about the quality of the assets underlying complex structured finance products led to valuation problems as did inappropriate accounting for the illiquid nature of many of these products,0
+this is due to the third criticism i outlined the belief that economic and monetary union cannot work due to institutional flaws,0
+it is important to keep in mind that the issue is not about the robustness of balance sheets as capital and provisions have significantly increased since 2012,0
+otherwise investors may become fearful of inflation and concerned about the sustainability of public finances,0
+on the other hand the concept of the medium term is seen to be too vague in the absence of explicit quantification although it should be clear that the macroeconomic concept of the medium term is measured in years not in months,0
+let me focus here on the financial risks of our own balance sheet on financial stability implications for the euro area and on effects on income distribution,0
+in addition a parliamentary rejection or dismissal of an ecbs executive board member nominated by the governing council for the supervisory board would in practice affect that members stance in the ecb decisionmaking bodies thereby institutionalising potential conflicts between the ecb and the parliament,0
+at the macroeconomic level the emergence and persistence of financial imbalances both globally and domestically created new systemic vulnerabilities which in some cases also reflected the stance of macroeconomic policies,0
+all these factors put the downside risks to economic activity coming from oil prices which i do not neglect into perspective,0
+or a situation where larger countries with larger resolution funds are in a position to exclude more creditors than smaller countries,0
+the second longterm economic issue i should like to address today is the need to prepare for the substantial financial consequences of the ageing of european populations,0
+15 the authors argue that this is due to an underestimation of fiscal multipliers which in turn led to an underestimation of the contractionary effects of the fiscal consolidation plans announced in early 2010,0
+and it seems the lesson still has not been learnt completely deadlines for the correction of excessive deficits are being relaxed the corrective tools that are available even under the new procedures are simply not being used as the cases of spain and cyprus in the recently conducted macroeconomic imbalance procedure illustrate,0
+these critics claim that the credibility of the single monetary policy has suffered as a result,0
+as such the eurosystems intermediation role waned and target balances began to decline from late 2012 onwards,0
+the main reason for this shift has been the underfunding of defined benefit plans which partly reflected unexpected demographic developments but also reflected the impact of low interest rates coupled with heavy losses in equity portfolios,0
+the flaw in the reasoning underlying the no regulation motto consists in my view in overlooking the fact that such passage was economic in nature not technical,0
+first there is the tendency for individuals to seek to economise on money holdings if inflation rises referred to informally as shoe leather costs,0
+this is the case not only because of concerns over the impact of monetary policy decisions in advanced countries but also given that an economic slowdown in emerging economies may potentially compromise a still fragile global recovery,0
+in a similar vein prospects of rising interest rates may discourage private savers from purchasing longerterm assets as a tightening of monetary policy inevitably implies a capital loss for those who bought these assets,0
+on top of that the traditional group of investors suppliers of liquidity for the banking sector have altered their investment strategies,0
+the beginnings were marked by a severe oil price shock which compounded the cost pressure and inflation implications of a secular decline in european productivity trends,0
+since then some of the downward risks to our main growth scenario have in fact materialised,0
+for example in practice the information from monetary aggregates is not incorporated into conventional macroeconometric forecasting models,0
+currently one of the most significant vulnerabilities of euro area banks relates to their weak profitability prospects,0
+first ecb staff analysis suggests that under the current rules requirements to reduce debt in excess of the 60 threshold risk creating a vicious circle between monetary and fiscal policy when inflation is below our mediumterm aim  which is precisely at a time when fiscal support is most needed,0
+but to the extent that part of that approach is linked to a relaxation in the expenditure cutting plans or new expenditures being contemplated which have a longterm effect then i would be concerned as they would had structural implications,0
+an important consideration is that economic slack is a multidimensional concept that is not directly observable and choices must be made on how to estimate or measure it,0
+in addition to these structural factors the current phase of low growth is undoubtedly also due to low confidence both among businesses and among consumers,0
+without insurance on the other hand there will always be an incentive to ringfence in order to safeguard national balance sheets which blocks effective risk sharing,0
+what can also be observed however  at least in some samples examined  is that the sensitivity of edfs to net leverage also shifts upwards when debt servicing costs increase,0
+the resulting rise in sovereign risk premia can be passed through to private sector funding costs especially if there is doubt about the ability of the public sector to counter adverse disturbances to nonfinancial and financial sectors,0
+2 the underlying causes of the shift from the tradable sector to the domestic sector were rather countryspecific,0
+of course fiscal sustainability and fiscal countercyclicality are interconnected it is not possible to respond countercyclically to a recessionary shock if debt sustainability is called into question,0
+however there are some uncertainties that remain beyond our control such as the external shocks coming from the asian and russian financial crises that i mentioned a moment ago,0
+a substantial weight should be attached to these risks in the context of the euro area in view of the alreadylow prepandemic inflation rate and the long interval of belowtarget inflation,0
+the emergence of macroeconomic imbalances the crisis has demonstrated how persistent losses in competitiveness can translate into macroeconomic imbalances eventually leading to a painful adjustment,0
+against the background of a deteriorating fiscal situation market confidence in the sustainability of public finances has been progressively eroded  though not just in the euro area  and the growth outlook is now surrounded by downside risks,0
+specifically people have warned against i the risk of supervisory forbearance associated with the central bank being the liquidity provider ii the reputational risk that may arise from the potential conflict of interest between the ecbs two areas of activity and iii legal risks which warrant particular scrutiny and which i will discuss more intensively,0
+these transmission problems bring me to the third dimension we have to recognise the limits to what monetary policy can achieve in current conditions,0
+in the absence of appropriate reforms sizable increases in contributions or even substantial increases in government indebtedness would appear to be in prospect,0
+but i fear that it may  produce rather poor monetary policy for several reasons,0
+over the longerterm however it is important that policymakers also reflect on the quality of financial integration in the euro area  that is the incentive structures in the financial sector that can lead to inefficient credit allocation and the channels for sharing risk when financial crises do arise,0
+it is obvious that such interest rate changes could cause collateral damage in the real economy,0
+the risk of a prolonged period of regulatory reform  and remember the current phase has been ongoing since 2009  is that it creates a moving target which in turn prevents the industry from settling into sustainable new business models,0
+at the same time inflation can make output stabilisation through fiscal policy less effective as workers expectations adapt and prices rise faster than incomes,0
+ultimately however it will mean that some banks will have to adapt their business models to operate profitably in the long term,0
+in practice we would have to amplify the ongoing sacrifice in real income suffered by the european economy,0
+under these circumstances a premature interest rate cut would have signalled a passive acceptance of such behaviour which would have translated into a further misalignment of price and wage expectations with respect to the underlying fundamentals,0
+this deterioration of the budgetary outlook was initially caused by large tax cuts which were welcome but which were not compensated by sufficient expenditure restraint,0
+currently the fund also lacks a common fiscal backstop as there are still dissenting views concerning an eventual mutualisation of recapitalisation needs resulting from socalled legacy assets,0
+but if central banks were less independent and the public perceived that monetary policy could be pressured in either direction it would eventually deanchor inflation expectations and jeopardise price stability  just as in the 1970s,0
+on the one hand rising energy costs can drive up prices directly by increasing the cost of production as well as indirectly by having secondround effects on wages,0
+the assessment of the implications for price stability of monetary developments was less straightforward particularly in the second half of 2002,0
+the shortterm challenges in our view relate mostly to the financial fragmentation that has taken place in the euro area,0
+as monetary dynamics over the past year have mainly been driven by developments in the most liquid components of m3 this continues to signal upside risks to price stability in the medium to longer term,0
+the lopsided nature of the economic model was not confined to the banking sector alone,0
+more importantly the political intentions of a certain government with respect to its social policy would either be unfulfilled if the price level is underestimated or vice versa,0
+in fact intervening with purchases on the secondary market may influence the financing conditions of public budgets and therefore this risks interfering with fiscal policy,0
+when these flows turned into outflows as the economic environment deteriorated after 2008 these imbalances not only led to problems for the countries concerned but also produced contagion to other parts of the euro area,0
+however these costpush effects on price dynamics might be counterbalanced to some extent by an overall decrease in aggregate demand which has deflationary consequences,0
+another criticism with which the eurosystem has been confronted relates to its monetary policy strategy,0
+also insufficient financial sector policy reaction on the side of governments exacerbated the detrimental dynamics and represented itself as a source of risk and uncertainty during the crisis ultimately fostering dynamics of selffulfilling prophecies,0
+see the european business and consumer survey results for april 2022 which show a significant realised and expected deterioration of households financial situation and major purchases,0
+in addition structural deficits have become rather large and public debt ratios have started to increase limiting the room for manoeuvre of automatic stabilisers,0
+the longterm risk from the prolonged period of sluggish growth also extends beyond real activity into prices,0
+typical demand factors are the lack of profitable opportunities for investment or the presence of deleveraging forces arising in other sectors of the economy,0
+it could be observed that a number of the issues i have just raised are direct rather obvious implications of the ongoing changes in our financial system and macroeconomic environment,0
+if we were to add the number of parttime workers preferring to hold a fulltime job and of those discouraged to look for a job figures also published by eurostat the real situation would be undoubtedly grimmer,0
+the chart on the right on slide 10 illustrates that at least certain hedge fund strategies suffered losses in marchapril 2005 owing to the turbulence in the corporate credit markets that was generated by the widely expected downgrades of two large us automakers which subsequently materialised in may,0
+i would also like to underline that measuring the magnitude of a crisis in the form of financial costs considerably underestimates the total effect on the society,0
+at the same time however the limitations of active fiscal policy may be greater when there is increased uncertainty about future income developments,0
+however experience has shown that when a country requests such assistance the national authorities tend to blame european institutions including the ecb for having pushed them to do so,0
+on the other hand looking to historical experiences with macroprudential tools being dynamic provisions in spain or loantovalue ratios in korea or to the implications of different models one conclusion we can draw is that those instruments are not sufficiently strong to tame the financial cycle,0
+ultimately if risks regarding the future course of fiscal policy are substantial and if its credibility is undermined unsustainable fiscal policies will have an impact on the creditworthiness of the government,0
+in what concerns the feedback loop with the sovereigns the overwhelming bulk came from the bailout of banks amounting in gross terms to 800 billion incurred by sovereigns 1 dwarfing the 50 billion that banks lost from their greek sovereign holdings,0
+this reflected not only a decrease in foreign demand for euro area exports but domestic demand was also adversely affected by domestic factors notably very low confidence and tight financing conditions,0
+once macroprudential policies are introduced it is far more difficult to monitor their impact on the target variables if only aggregate data are available,0
+still the possibility that inflation may occasionally be driven by spells of backwardlooking dynamics does not mean that downward drifts  in both observed and expected inflation  should necessarily be looked through by the monetary authorities as selfcorrecting and hence policy irrelevant,0
+in this respect the information available is scarce and certainly insufficient to conduct appropriate supervisory activity even more so than for monetary policy,0
+fourth the current account balance is an important summary indicator that may signal losses of competitiveness and emerging imbalances,0
+resolving the legislative issues the statutory regulation problems which are the responsibility of governments and parliaments is of course much more difficult at a european level with many national interests than at the national level,0
+the ecb was faced with interrelated key challenges namely deleveraging fragmentation and a weak economic environment,0
+the scandinavian banking crisis of the 1990s would be a case in point which painfully demonstrated that neither banks nor supervisors were actually capable of adequately evaluating risks in a quickly deregulated financial system,0
+he interprets this finding as implying a leaderfollower structure in the sense that us monetary policy induces the ecb to deviate from its objective of price stability out of concern for the exchange rate,0
+apart from these operational considerations there are also analytical legal and ethical concerns related to the use of such data,0
+the fact that developments in government bond yield spreads have mirrored higher sovereign cds premia suggests that concerns about fiscal sustainability have become an important factor affecting investors perceptions,0
+around that time we saw the balance of risks to the inflation outlook shift decisively downwards while the distribution of risks widened to encompass outright deflation as you can see by comparing the blue and red lines on my second slide,0
+on the external side current account imbalances are still high in many countries with an average deficit of 43 of gdp in 2001,0
+in view of problems accompanying the erm as well as the political constraints emu was the obvious option for europe,0
+in terms of allocation a key concern at the present time is that very loose financing conditions could result in a misallocation of resources which would ultimately undermine financial stability,0
+consequently it may pose a challenge for regional policy at national or eu level rather than weighing on the optimality of the currency area,0
+therefore when we finally faced the postlehman brothers meltdown and the different  and far more serious  decision of handling panic against preserving incentives the required experience on how to deal with it had to some extent been lost,0
+a second issue that has to be discussed in relation to this proposal is whether we see a market failure,0
+internally the present low savings rate of spanish households and the need to restore savings in the near term points to moderation in consumption going forward,0
+the challenges monetary policy had to confront in the euro area were in particular born of weaknesses in the institutional framework of our monetary union,0
+we have observed many instances of supervisory failure in which supervisors did not fully understand the business models of the institutions they were overseeing or the nature scope and location of the underlying risks,0
+when demand is weak structural reforms can result in higher shortterm adjustment costs as for example people losing their jobs take longer to find new ones,0
+on the other hand central banks have to be aware that if their communication is badly interpreted market participants may be led to make wrong decisions with potentially large economic losses,0
+the lack of such mechanisms could fuel runs on stablecoins if holders  who bear the risks of fluctuations in the value of reserve assets  expect a significant decrease in the redemption price or perceive the issuers as being incapable of absorbing losses,0
+also the evidence of the deleveraging of nonfinancial corporations during the financial crisis points against the hypothesis of the evergreening of loans,0
+in essence what these developments were highlighting was that we did not have a truly single banking system in the euro area we had a juxtapositionof national banking systems which is why they fragmented so easily,0
+in the euro area rising imports from lowercost countries mainly from china and the new eu member states appear to have put downward pressure by an average of approximately 2 percentage points per year on extraeuro area manufacturing import prices over the period 19952004,0
+what we see as a result is that this is helping the large banks and the large credit institutions and in fact impoverishes the country because the small elements in the system  those who talk to small traders small and mediumsized enterprises and so on have no longer someone to talk with,0
+losses were magnified by illiquid markets for many types of structured instruments leading to sharp decreases in secondary market prices,0
+i think nevertheless that in such a systemically delicate area as banking we cannot afford to adopt the attitude of letting things happen,0
+eventually the fragmentation of financial conditions became so severe that we were effectively losing the steering ability of our monetary policy for the euro area as a whole,0
+this is key particularly in view of the much observed correlation between the cost of funding of euro area banks and that of their respective sovereigns and the subsequent fragmentation of the european banking system,0
+1 moreover there are concerns that a negative feedback loop between the financial sector and the real economy may emerge in some countries which may result in a prolonged period of weakness in economic activity and entail deflation risks,0
+the expected slowdown in profit growth  which is shown in the chart on the left of slide 11  is a consequence of possible further valuation losses increased funding costs as well as declining noninterest income from securitisation and capital market activities,0
+i will now expand on the first aspect and try to bridge it to the problem that in my view undermines the policy benchmarking function of simple policy rules in unconventional monetary policy times like the present,0
+on top of these rigidities the interplay of an impaired credit channel fiscal consolidation and falling confidence has deepened the recession,0
+and this comes at a time when profitability is already weak when the sector has to adjust to postcrisis deleveraging in the economy and when rapid changes are taking place in regulation,0
+first of all there is the painful realisation on the part of consumers in several countries that the economic strength that they had come to regard as natural over the last several years seems not sustainable,0
+more recently these discussions have also tended to highlight more direct implications of inflation differentials for the formulation of monetary policy in a single currency area particularly where such differentials are coupled with or are the product of nominal and real structural rigidities,0
+while such caution is certainly optimal from an inflation stabilisation point of view it might be wrongly interpreted as a systematic deflationary bias by the public and the politicians,0
+in addition the progress in structural fiscal consolidation envisaged for the medium term appears to be only moderate,0
+an inflationary monetary policy would almost certainly lead to higher unemployment in the medium run as longterm interest rates would rise and the benefits of price stability would be lost,0
+indeed the credibility of european integration is being challenged for reasons that no responsible policymaker can afford to disregard,0
+of these the high tax wedge on labour appears to be especially striking not least because it is even greater in the new member states than in the older ones where it is already too high,0
+as a consequence inflation expectations become unanchored and negative with adverse effects on investment and consumption,0
+second the proposal to switch to a full inflation targeting framework disregards what are by now the wellknown shortcomings of this approach,0
+but the major risk is that we see the downturn in expectations regarding real economic developments,0
+there can be no turning back as the failure of monetary union would not only be extremely costly from an economic point of view but the political fallout would be unimaginable and would be tantamount to a catastrophe,0
+in both areas the institutional incompleteness of the euro area has hindered the process of balance sheet adjustment,0
+finally the creation of leverage via derivatives and securities financing transactions sft and the procyclical effects of margin and haircutsetting practices in these transactions would also need to be addressed,0
+another source of regulatory fragmentation is the supervisory powers under national law that are not explicitly mentioned in crd iv,0
+this would have come at a time when inflation was falling and inflation expectations were already clearly destabilised,0
+on the domestic side a continued need to repair balance sheets in various sectors will affect the outlook as it did in 2009,0
+the implication is that some euro area fixed income securities are increasingly hard to come by or come with a price tag unattractive for more shortterm orientated investors,0
+it appears that a number of updated stability programs which have recently been sent to the european commission for examination do not yet sufficiently incorporate such objectives,0
+the price of delaying reforms is particularly high at the current stage,0
+such fiscal transfers will not be a realistic option for long time because the impact on national public finances would go far beyond the levels which are accepted by the public,0
+11 in these cases investors still have to make a decision and judgement  often based on current observables  is usually the only basis they have,0
+the inclination could be to postpone it as long as possible but the risk then is that when the adjustment finally comes on top of other adjustments in the economy its effects could be very disruptive,0
+the task of policymakers is further complicated if they suspect that customary cyclical movements are compounded by an ongoing change in the deep structure of the economy,0
+more recent information indicates an even stronger fiscal deterioration,0
+the sovereign debt crisis came to a climax in mid2012 when the risk of breakup seemed acute,0
+when these factors  which are not considered in standard money in growth models frameworks  are taken into account there can be no doubt that inflation is harmful for both output and welfare in the medium term,0
+and that may be particularly true in areas where your mandate isnt so clear as it is when it comes to inflation,0
+but it is equally accurate that the idiosyncratic negative shocks stemming from such euro area countries in the past two years have led to a major repricing of their sovereign risk,0
+inflation in europe is far too high partly due to our vulnerability to the changing geopolitics of energy,0
+there have been excessive asset price development that have been difficult to reconcile with the fundamentals not to mention bubbles,0
+an additional component of complexity enters in the conduct of monetary policy when financial markets are not well integrated in the domestic currency area,0
+an important final element related to the exit strategy but which should be considered carefully already when deciding to embark on unconventional measures is that when the central bank sells the assets their value is likely to have declined considerably given the higher rate of interest,0
+in view of the multiple objectives of banking supervision that at times might even conflict with the ecbs primary objective of maintaining price stability it would not be justifiable to extend the independence under article 130 of the treaty to the ecb as supervisor,0
+a policy may turn out to be inappropriate for example because it is based on incorrect economic forecasts or because it is implemented through ineffective instruments,0
+12 note also that in the case of nominal gdp level targeting an additional challenge arises due to the unobservability of potential gdp and measurement errors in real gdp,0
+fully centralised supervision wouldve had the considerable disadvantages associated with an organisation being too large the resultant burdens for all concerned  which would be considerable  and a loss of national and regional expertise concerning the specific characteristics of banks in the member states,0
+some watchers argue that monetary analysis is irrelevant or even misleading,0
+if this cycle of adverse externalities across sectors sets in the ensuing deleveraging spiral becomes a matter of public policy concern,0
+at the same time the current financial crisis and economic recession has made some shortcomings in the availability of euro area macro data for monetary and economic analysis even more evident,0
+however the attractiveness of asset separation schemes has fallen significantly since the implementation of revised state aid rules in 2013 as a result of very strict interpretations with financial stability considerations playing a minor role even if mentioned in the regulation,0
+these fiscal strains are keenly felt throughout europe at the current juncture,0
+at the same time fundamental restructuring will be needed when the longterm viability of banks is likely to be threatened by the taking away of state support,0
+13  in fact when we look at megabank mergers in the us empirical evidence suggests that this type of merger implies shareholder value creation for the banks involved but losses for loan customers especially if they are small and creditconstrained or if the acquisition is an inmarket deal,0
+but clearly they might have very different implications in terms of the monetary policy stance and risks to financial stability,0
+banks profitability prospects could thus be dampened by deteriorating growth expectations adding to structural weaknesses,0
+because recommendations from outside a country even if correct on substance are typically dismissed,0
+in fact in some accession countries the current fiscal policy stance might not be sustainable over the medium term or may conflict with other policy objectives in particular the continued fight against inflation,0
+finally the debt crisis in the euro area has its roots in insufficient fiscal discipline and even more importantly in divergent productivity trends among the member states,0
+indeed the current crisis may be the most severe seen since the 1930s,0
+it is even more problematic in the event of crisis resolution especially for crossborder institutions as has been seen in the specific case of a large and complex banking group,0
+it is therefore clear to me that central bankers often have to face largely unexpected and difficulttomodel situations in which their reactions are nevertheless central to the final outcome,0
+the upshot is that we are operating in a world of much higher uncertainty  about the nature of the shocks we are facing how they will propagate and what the public will believe about them,0
+a further upward risk relates to the future evolution of indirect taxes and administered prices as very little specific information is currently available about these in 2005 and beyond,0
+it was the inconsistency with the domestic monetary policy requirements which led to a breakdown of the system in the early 1970s,0
+the issue of facing potentially conflicting targets is especially relevant for those countries that intend to enter erm ii with an inflation targeting framework,0
+second is the cyclical challenge posed by the low growth and low inflation environment which go along with lower levels of policy interest rates,0
+the inflation outlook is also a source of major concern,0
+such spirals could be triggered if funds were to be confronted with high redemptions or increased margin requirements as these could result in forced selling on markets with low liquidity,0
+consequently europeans do not see the added value offered by europe and tend to lose confidence in it,0
+when such an acceptance is not there but only national interests and national perspectives prevail then confidence between europeans is seriously undermined,0
+if we take only the financial cycle into account we may be forced even with our mediumterm orientation to make compromises in terms of our price stability objective,0
+the downgrade of portugal and above all the continuing fears of a greek default apparently triggered a selloff in spanish and italian government bonds,0
+if greece were on its own the adjustment would have to be much faster and more drastic given that the sovereign has lost access to financial markets,0
+the budget deficit in both the united kingdom and the united states is projected to be about 14 of gdp in 2010 whereas in japan it is projected to be about 9 of gdp,0
+and then there is a risk aversion factor,0
+recent policy choices to focus more on domestic demand coupled with us export controls on semiconductors and trade restrictions on key technologies owing to cyber risks could affect chinas place in the global economy,0
+in reality it was a symptom of the aggressive deleveraging that banks were pursuing which made ecb borrowing unnecessary and costly to maintain onbalance sheet for many of them,0
+on substance some stability and convergence programmes and national reform programmes lacked specificity and ambition and were based on implausible macroeconomic assumptions,0
+that being said persistent losses in relative cost competitiveness can also relate for instance to a number of structural rigidities leading to inertia in price and wage formation,0
+however there is a general danger that such an approach dilutes incentives and accountability for individual policy makers,0
+share prices of european banks for instance have been extremely volatile,0
+sluggish investment in turn lowers income and prices thus reinforcing deleveraging pressures,0
+however these sizeable flow adjustments have not yet fully translated into improvements in the accumulated stock of imbalances  public debt ratios on the fiscal side net international investment positions on the macroeconomic side  because of depressed nominal gdp growth,0
+now the predicted declines in investment and savings described so far make the expected effect of ageing on the equilibrium real interest rate ambiguous,0
+confronted with even marginal increase in the shortterm borrowing costs due to the increase in the policy rate these institutions are forced to wind down their leveraged positions,0
+market valuations were hit hard at the height of the crisis and analyst forecasts of bank profitability for 2020 have recently undergone large downward revisions amid concerns that banks will need to increase their provisions for future credit losses,0
+20 while it can be individually rational for fund managers to sell assets in excess of current outflows when uncertainty about future redemptions is high such cash hoarding can be detrimental to wider financial stability,0
+however from a political economy viewpoint selfstabilisation may lead to shortterm fluctuations of an intolerable size and even seriously undermine agents trust in a marketbased economic system as several historical episodes have shown,0
+many observers and commentators have characterised us and our monetary policy as facing a dilemma  or even a trilemma  as we simultaneously confront high inflation a slowdown of economic activity and threats to financial stability,0
+another fundamental problem of fiscal policy is its lack of timeliness or to put it differently its implementation lags,0
+within a few months from january to july 2009 the distribution of gdp projections for the current year shifted to the left increasingly into negative territory,0
+by the 1980s the global economy had experienced two oil price shocks and found itself in a stagflationary environment,0
+the worrying issue from a policy perspective is that an exchange rate adjustment if not supported by other policy measures would have to be enormous for instance blanchard giavazzi and sa 2005 estimate that the us dollar would have to depreciate in effective terms by between 40 and 90 all else being equal to reduce the us current account deficit to sustainable longterm levels,0
+if anything the scant evidence available on earnings expectations point in the opposite direction,0
+the nearterm growth outlook is also skewed downward,0
+in my personal view this orientation suffers from serious flaws,0
+in such an incomplete framework national considerations inevitably continue to affect supervisory decisions,0
+in the end the deleveraging process triggered by the policyinduced restriction would ultimately exert a dampening effect on asset price growth,0
+and perhaps more importantly the distributional effects of not acting to defend our mandate would have been severe,0
+why should monetary policymakers be bothered by such unbalanced budgetary positions,0
+indeed such policies are likely to be counterproductive as they may endanger macroeconomic stability and thereby economic growth,0
+more importantly it could also raise the counterparty risks some banks face visàvis hedge funds in case it would trigger a cluster of hedge fund failures,0
+the whole set of issues related to mrel have to be addressed with great care as very high new requirements of subordinated debt or capital would not easily be absorbed in present market conditions and would therefore lead to financial stability concerns,0
+the real risk is that the adjustment takes place even later while imbalances are left to accumulate for a longer period of time,0
+second deleveraging forces and fire sales have a direct impact on the value of collateral,0
+clearly the crosscountry differences i mentioned above and several others more are at least as much an issue for crisis prevention management and resolution as they are for financial integration,0
+and that brings me to the second point which is that we cannot be sure whether we are measuring slack correctly in the first place,0
+there are other broader implications of issuing an international currency which are less welldocumented and not as easily quantifiable,0
+5 moreover the more muted responsiveness that accompanied the introduction of the policy package in mid2014 also went along with a pronounced flattening of the short to mediumterm segment of the forward curve see figure 6,0
+otherwise political and economic preferences at the national level or industry lobbies can lead to substantial divergence between member countries,0
+expectations of longterm prospects are also depressed,0
+it was particularly challenging to deal with these phenomena in countries that had fixed exchange rate regimes given the lack of an autonomous monetary policy,0
+notably the absence of nominal rigidities in a real business cycle setting implied  among other things  that the new paradigm was fundamentally incapable to reproduce the key macroeconomic facts uncovered by the structural var literature first and foremost the sluggish and drawnout response of key variables such as inflation and output growth to monetary policy innovations,0
+this is obviously not a satisfactory approach for an institution like the ecb which is faced with the reality of a diversified euro area system every day,0
+8  fiscal policy then faces a difficult tradeoff between business cycle stabilisation and debt sustainability in particular in a situation with high legacy debt,0
+the euro area entered the crisis with an incomplete institutional and regulatory framework not only for the banking sector but also in other areas of economic policy,0
+one was for fiscal policy it needs to deliver sound fundamentals as the only way to lastingly overcome the crisis but at the same time there can be no viable fiscal adjustment that can ensure sustainability if the interest rate faced by the fiscal authority keeps rising and there are severe distortions in government bond markets,0
+1 the european commission in its january 2009 interim forecasts sees a contraction of the eu economy of 18 and of the euro area economy of 19,0
+first of all the argument does not fit with the facts we have seen in the euro area,0
+to sum up we have seen that the causes of the current crisis can be traced back to macroeconomic imbalances and at the micro level to incentive problems and that regulatory and supervisory deficiencies have also played a role,0
+on the one hand downward risks could materialise if import or producer prices were to fall further,0
+europe is facing a number of challenges simultaneously in the economic sphere and beyond,0
+it is widely recognised that the financial difficulties currently faced by the argentine banking sector are largely the result of developments beyond its control,0
+it follows that this first approach to quantifying the effects of our policies is likely to underestimate by a wide margin their true effect under the macrofinancial conditions generated by the extraordinary pandemic shock,0
+18  but as i have argued in the past19 a number of lines of defence  such as deposit insurance supervision and the lender of last resort  would have to fail or be perceived as insufficient for such risks to materialise,0
+as a result analyst forecasts of bank profitability for 2020 have undergone large downward revisions in recent months mainly driven by expectations that banks need to increase their provisions for future credit losses,0
+as a result profitability stemming from the maturity transformation business may come under renewed pressure  not least as retail household deposits tend to be bound at zero,0
+the path that connects the two extremes  starting from the policy interest rate that the ecb controls through its monetary policy operations  is long and convoluted,0
+the sustained deflationary episodes of the great depression in the 1930s and those in japan in the second half of the 1990s have some underlying factors in common,0
+should the share of longterm unemployed stabilise at one point with no convincing signs of further likely downward adjustments the risks of inflationary pressures starting to emerge at higher levels of unemployment would increase,0
+but the crossborder exposures within the euro area are an order of magnitude greater than was the case for such intraregional crossholdings in asian emes,0
+this in turn could lead to an excessive depression of prices of financial assets fire sales resulting in a chain reaction on the budgets of other institutions that would see the value of their own assets diminished,0
+svensson argues that leaning against the wind not only has a cost in terms of a weaker economy if no crisis occurs but in addition the costs of a potential crisis would be even more substantial if such a policy was used by means of a second round of unemployment cost,0
+the key issue is that if national fiscal policies are expected both to stabilise the business cycle and to bailout the banking sector incurred and contingent liabilities become unsustainable in a banking crisis,0
+but recent events have also revealed weaknesses in traditional monetary indicators,0
+however the study also clearly points out that if stakeholders are reluctant to embrace sepa and if the migration towards sepa does not take place in a timely and comprehensive manner there are likely to be fewer benefits for customers and banks and corporates could even record losses  for example if participants have to run systems in parallel due to a slow migration process,0
+slide 6 reforms concerning age related expenditures until 2060 high and rising agerelated longterm budgetary costs which include pensions health and longterm care costs changes in unemployment benefits and education expenditures put a burden on public finances in the longterm,0
+3 the discussion has sometimes bordered on the doctrinal if not dogmatic,0
+a bank may be too expensive too complex or even too wellconnected to resolve at the national level making bailout the preferred strategy,0
+related to this latter issue i should add that in fact the rising oil bill has become an additional hurdle to the adjustment of the us current account deficit partially explaining its worsening over the past few years the oil bill net imports of the united states rose from 07 of gdp per year from the mid1980s until the end of the 1990s to 18 of gdp or around onequarter of the us trade deficit in 2005,0
+in these circumstances there is a risk that conditions may arise that economists call multiple equilibria in which the price does not necessarily reflect economic fundamentals,0
+as this article has tried to illustrate the issue is a highly complex one with various players and macroeconomic policies contributing to varying degrees,0
+7  at the same time monetary policy has inevitably created destabilising spillovers as well especially when business cycles have been less aligned,0
+this event provided a clear example of the potential impact of protracted market illiquidity on funding illiquidity and ultimately solvency for individual financial institutions whose business activities depended in many different ways from the viability and strength of the originatetodistribute banking business model,0
+by contrast limiting attention to a specific projection horizon may lead to policy errors the effects of which can be undone only later at the cost of increased output volatility or lower growth rates,0
+the increases in energy and food prices which led to the extended inflation hump until midlast year will subsequently drop out of the yearonyear comparison in the coming months,0
+combining fiscal prudence with structural fiscal reform will be a major challenge for policymakers in the future,0
+so the fact that we were seeing longerterm inflation expectations responding to low oil prices was a source of concern,0
+the creation of emu represents a major structural change for the european economy and a great challenge to policymakers,0
+7  the third structural factor that has contributed to flat or falling real household incomes of younger generations relates to national labour market institutions,0
+ultimately of course the same effects of losing competitiveness will work their way through also in relations between ireland and the rest of europe,0
+if the fiscal side does not adjust inflation risk mutates into liquidity risk,0
+i am merely recalling the developments over the last two to three years when we faced exceptional uncertainties and major stock market movements followed by large portfolio adjustment,0
+monetary and credit imbalances which form alongside and  i would say  in symbiosis with an asset price trend indicate that price stability might be endangered over the medium term,0
+these factors are increasingly weighing on economic sentiment and in particular on the manufacturing sector,0
+the deteriorating inflation situation  in parallel the inflation gap had widened as the inflation outlook had materially worsened towards the end of last year,0
+the sobering experience of the following few years with the framework determined the need for clarifications and ultimately for a revision of the strategy,0
+if unaddressed this would lead to a tightening of financing conditions that is inconsistent with our domestic outlook and inimical to our recovery,0
+our main concern is that slovakia being a catchingup economy is likely to face inflationary pressures that could derail the economy from a sustainable convergence path after euro adoption,0
+at the same time accepting low or even negative inflation rates in such a situation may render the balance sheet adjustment more painful and drawnout,0
+however most calculations clearly suggest from a qualitative point of view that current fiscal policies in many euro area countries cannot be maintained in the long run while at the same time retaining the financial integrity of public sectors,0
+i mentioned earlier for example that in recent years increases in indirect taxes are estimated to have contributed in the order of 02 to annual increases of the hicp index,0
+a mechanical application of the current rules could imply fiscal adjustment needs in some euro area economies that would be severely damaging from a societal economic and monetary policy perspective,0
+this would have wider implications in the form of impaired market liquidity and possible spillovers to the real economy,0
+but too high a profitability may also spell problems,0
+the severe economic and fiscal pressures associated with demographic developments make structural reforms even more urgent,0
+25 however other evidence suggests that quite large interest rates movements would be needed to offset the financial cycle which would in turn create collateral damage for the economy and price stability,0
+4 and apart from the direct costs there are also the indirect costs of regulation such as the diversion of productive resources and the potential negative impact on innovation which are even more difficult to gauge,0
+this performance reflects partly further writedowns on structured product portfolios and increasingly the deterioration in the macroeconomic environment which resulted in an increase in loan losses and a decline in noninterest revenue,0
+today we can look back at this period and see the expectation gaps that we could not clearly identify in realtime,0
+unfortunately the remaining national options and discretions in the eu regulatory framework hamper the practical application of such waivers,0
+ultimately it implies that financial integration based exclusively on national financial policies cannot ensure financial stability,0
+second since most of the member states are small open economies relative to the large relatively more closed euro area their domestic aggregates are likely to be less stable,0
+and if not why can you not spell it out rather more clearly because of course if you look at the domestic output price index or the producer price index this has actually been continually declining since december 1997 and there is a serious worry,0
+margins and haircuts are a determinant of the buildup of leverage via derivatives and sfts and are strongly interlinked with the procyclicality of that leverage,0
+these imbalances stemmed from different sources insufficient fiscal discipline financial excesses failure to implement structural reforms especially but not exclusively in the labour and product markets and significant competitiveness losses,0
+the ensuing deflationary pressure has further exacerbated the balance sheet contraction through the fisher effect on the real value of outstanding liabilities of banks,0
+not only would investors lack equity to absorb losses but losses would also spread to creditors,0
+there are many trajectories that output and inflation may follow before reaching their higher longrun level and some trajectories may imply very protracted recessions,0
+from a more general perspective it is important to recall that agency costs and excessive risktaking behaviours can be traced back to unsatisfactory corporate governance and regulatory frameworks as well as to shortcomings in the design of compensation plans,0
+the profitability of these banks might suffer,0
+these developments were also accompanied by a significant decline in various measures of longterm inflation expectations,0
+nevertheless there remains deep concern which i share about the potential implications of such arrangements for monetary stability at the domestic level,0
+on the one hand economic indicators pointing to persistent slack in the real economy,0
+but also core inflation which excludes food and energy prices will remain significantly below projections from as recently as march and will do so for a very long time slide 4 right,0
+i personally believe that this argument is flawed and misplaced,0
+30  on the contrary when countries are under market pressure they are typically either compelled to enter macroeconomic adjustment programmes or they enact reforms that are poorly designed and easily reversed,0
+also according to many people the instability that at least at the level of the individual firm is inevitably brought about by a competitive system is really not congenial to banking,0
+such a euro areawide perspective would not be fostered if members were subject to public and especially national pressure,0
+reflecting these concerns forwardlooking financial market indicators such as banks cds spreads and share prices currently suggest that challenges pertaining to the banking sector are likely to remain in the near future see the chart on the right of slide 12,0
+had this promise not been met quite a number of people in europe would have seen their market interest rates rise at the moment of transition and they would have rejected it,0
+finally a restructuring would also have major political consequences if the loans made by the other euro area countries were not repaid in full,0
+indeed following the capital and provision increases since the financial crisis the npl issue does not primarily concern solvency but rather banks profitability,0
+not least because of the ecbs lack of a track record it was simply inconceivable for the single monetary policy to be pursued on a purely discretionary ad hoc basis,0
+since bad issuers are according to the theory driven out by the fact that they have recourse to inflationary issuance this suggests that the discovery process would itself be characterised by inflation,0
+finally it is important to review the financial position of the imf and the implications of lower lending activities on the funds operational budget,0
+one hypothesis is that by focusing the discussion on the ecb the latter becomes the scapegoat for domestic policy shortcomings,0
+therefore the rise in prices relative to the external sector implies a loss of competitiveness for the economy,0
+while the basic results of the mm theorem may approximately hold in the long term in itself a controversial statement after the crisis financial markets are characterised in the short run by information asymmetries myopic agents not optimizing intertemporally and other frictions which can be especially prevalent in distressed periods,0
+of course it may also be that we have not been clear enough in our communication  that investors misunderstood our forward guidance or our reaction function which is different from doubts about our willingness to act,0
+however this has masked significant intraeuro area imbalances in terms of current account positions competitiveness and public finances,0
+there have been anticipation effects but the chart strongly suggests that net debt outflows accelerated as the app continued and decelerated only when we decided to reduce the pace of our monthly purchases in december last year,0
+an important issue here is the possibility that the natural real rate may have fallen very low or even gone negative this could occur for various reasons such as low productivity or a slowdown in population growth both of which are relevant for the euro area,0
+however this has to be complemented by capital requirements as insuring against counterparty risk can make market participants more complacent,0
+these shortcomings were a catalyst for the other two crisis dimensions they facilitated excessive leverage throughout the economy which in turn sowed the seeds for the ongoing deleveraging crisis they did not address the spillovers stemming from interconnected financial systems in a single currency area and they failed to impose tough budget constraints on governments thus allowing them to postpone their efforts to address the crisis of the social contract and leaving them without adequate fiscal space to cushion the crisis,0
+4 in my view the concerns that prompted the act were very similar to those currently being voiced  particularly in relation to concerns about banks business models and the sale of unsound securities to unsuspecting investors,0
+basel iii and macroprudential policy in the eu during the recent crisis several gaps in the regulatory and supervisory framework for financial institutions were revealed,0
+another claim that we sometimes hear is that countries should put off structural reforms that combining them with fiscal consolidation in the current economy will only make the downturn worse,0
+6 policymakers who base their decisions mainly on such assessments of the cyclical position can be led very much astray,0
+and this is something we supervisors are not very keen on not least because we have already seen significant market volatility,0
+2 the ensuing great depression brought real severe economic consequences,0
+second more recently net issuance of some aaarated sovereigns such as germany and the netherlands has been negative,0
+the same elasticities however will send the budget into distress when the boom reverses,0
+the last ecb forecast from early march was worse than the one published a few weeks earlier by the european commission mainly because it was able to include preliminary data for the last quarter of 2008 showing a gdp fall of 15,0
+the second factor is that in the face of systemic crises such as the one through which we have passed those who govern must sometimes take decisions that infringe longterm rules,0
+nevertheless i acknowledge that industry has raised several important issues to the tlac proposal in particular relating to the size of the required tlac market the impact on bank funding costs the calibration and the link with the leverage ratio,0
+it was indeed underlying the deflationary risks perceived by some commentators it was underlying the increased burden of servicing the high debt of both the public and the private sector which constituted a drag on the recovery and it was underlying the weak profitability of the banking sector,0
+in particular the counterfactual of a full decentralisation of fiscal policymaking is not desirable from a euro area wide perspective,0
+of course it cannot be excluded that this process might well be nonlinear with episodes of discontinuity perhaps also including financial crises somewhere down the line,0
+16 this would be the case if high unfunded budget deficits ended up eroding the credibility of the central bank to pursue its monetary policy objectives endangering price stability,0
+to cite just one example a study published by the bank for international settlements in 2008 on the management of foreign exchange reserves 3 remarks that central banks have traditionally had a low level of tolerance as regards credit risk and therefore have limited expertise in credit risk management,0
+not only did the pandemic deliver a major shock to demand with potentially deflationary consequences  consumption in the euro area contracted by 165 in just a few months  but it also had strong asymmetric effects on countries that for instance relied more on tourism,0
+more philosophically the crisis also suggested that we as a profession had perhaps lost touch with an older tradition of economics that had precisely sought to emphasise uncertainty the limits of information and the wider social context underlining economic interactions  as for instance highlighted by von mises and hayek economic calculation problem and hayeks fatal conceit which submits that knowledge is dispersed across society and can never truly be known by any one agent or entity2  a fact that the former chief economist of the ecb otmar issing never failed to remind us of,0
+but this too was delayed and its urgency was downplayed in the face of the requirements of a purported national sovereignty which was in reality weakened by globalisation and growing levels of public debt,0
+this ambiguity might cause conflicts of interest and this leads us to the question of how to deal with them,0
+as the responsibilities of different policymakers become blurred their incentive to act appropriately is diluted and ultimately the overall coherence of the policy stance is lost,0
+institutional challenges the incomplete institutional construct of the euro area especially the lack of an integrated banking system has at times severely complicated the management of the crisis,0
+at the same time economic analysis identified a number of upside risks to price stability which were perceived to prevail over other potentially dampening factors on prices,0
+at the same time i want to emphasise that these monetary policy measures cannot address the root causes of the crisis,0
+fiscal policies and structural policies are in the forefront as the most severe problems that ageing will pose for public policies are likely to come in the form of a dramatic deterioration in fiscal positions  owing to mounting pension expenditure  and a considerable reduction in the rate of growth of the labour force,0
+but increasingly larger current account deficits have resulted from significant losses of national competitiveness signalling domestic macroeconomic imbalances and deeper structural problems,0
+the exercise included adverse scenarios that reflected severe assumptions especially in relation to sovereign risk and growth paths,0
+in particular the ongoing rise in import shares from china combined with its continuing lower price levels should on the whole continue to put downward pressure on euro area import prices,0
+third the experience of the 1970s shows that a policy that is falsely calibrated on the assumption that inflation will decline by itself could ultimately put the green transition more fundamentally at risk,0
+this is especially the case in the most recent phase of the crisis when sovereign debt concerns and their interaction with the strength of bank balance sheets have been central,0
+obviously this raises a political problem which is that it might be difficult for a central bank to tighten its policy stance as long as no evident signs of inflation are visible,0
+moreover going back to a governing council decision already taken last december the number and frequency of longerterm refinancing operations is gradually being scaled back,0
+first of all because when monetary financing was available for the countries that actually vastly used monetary financing before the euro the situation was very bad,0
+risk management became difficult because information was unavailable to investors buried in financial structures that were not transparent,0
+in addition the smp had unintended side effects such as a perceived preferred creditor status of the ecb visàvis other creditors,0
+this was the case in the 1970s  a time when political interference in the conduct of monetary policy was still widespread and central banks were lacking independence see left chart slide 6,0
+the conclusion therefore is that constantly tinkering with our common fiscal rules while leaving governance of structural policies entirely at the national level makes little sense,0
+profitability however is affected by the lower returns provided by the npls given the weight of gross exposures in total assets,0
+i agree that bailouts especially when shareholders and bank management are not penalised create moral hazard that may feed subsequent reckless management behaviour down the road,0
+however following the announcement of new parliamentary elections at the end of december 2014 economic conditions started to rapidly deteriorate,0
+yet in my view this would have extended the notion of the medium term to temporal dimensions that would have been hardly justifiable on the basis of accountability to our objective,0
+many of the downside risks to euro area financial stability that were identified in the december 2008 issue of the fsr have crystallised,0
+still it would be too simple to lay the challenges faced by monetary policy solely on the european supranational institutional framework national characteristics were in many ways inadequate too,0
+its now if you look at the latest imf forecast 19 so theres been a substantial reduction in the growth forecast for this year and that obviously has an impact on public finances,0
+placing that cash as unsecured deposits would represent wrongway risk for ccps as the collapse of a significant financial institution would create significant market volatility at the same time as potentially the loss of some of the unsecured deposits,0
+incidentally the painful return to a less ambitious attitude towards macroeconomic policy in the 1970s and 1980s was associated with the rediscovery of the role of money in the economy,0
+the question of whether investment is too low or national savings are excessive is of course controversial,0
+but the shortterm gain of preserving financial stability comes at a great cost in the long term,0
+this statement was conditional on an overall subdued outlook for inflation extending into the medium term which is currently the case as i have just explained,0
+conversely these heterogeneous financial conditions mainly reflect persistent fiscal macroeconomic and financial imbalances as well as persistent structural problems in several countries,0
+europe may have been perceived  especially from outside  as excessively inwardlooking throughout this period,0
+on the other hand if inflation were rising banks but banks in the euro area were still repairing their balance sheets raising rates could have damaging consequences for the banking sector,0
+then you have the counterparty recess related to the perception that my counterparty can fail because of lack of capital,0
+it must be noted however that banks expectations that the app will negatively impact profitability do not seem to be aligned with either market evaluations or our own internal appraisals,0
+unfortunately when stock prices came down sharply the costs of the excesses became evidently clear,0
+policy challenges from population ageing fiscal policy population ageing will have a deep impact on public finances in the euro area for decades to come,0
+in addition the construction and publication of central bank forecasts can raise a whole number of problems which severely limit the relevance of such forecasts for monetary policy,0
+limited understanding of macroprudential policies  in advanced economies experience concerning the use of macroprudential policies is relatively limited if you ignore all sorts of administrative interventions that were usual in many european countries from the 1960s to the 1980s interventions such as limits to credit or even limits to deposits as in the united kingdom in 197172 or minimum down payments for consumer credit,0
+more generally there is concern that the persistence of sizeable fiscal imbalances in europe and elsewhere may undermine the publics trust in the sustainability of public finances and entail risks to economic growth and to financial stability,0
+especially in a crisis the responsibilities for monetary policy and for fiscal policy have to remain quite separate,0
+underpinning this outlook are first receding tensions in financial markets notably the disappearance of the debate about the reversibility of the euro,0
+on one hand it implies that the speed of the disinflation process may need to take the catchingup component into account and that the monetary policy objectives in accession countries might need to be different from those applied to highincome countries or to the euro area for some time,0
+12 moreover there was a distinct perception of a lack of an effective mechanism to influence macroeconomic and structural policies in key countries where those appeared unsustainable from the standpoint of global economic and financial stability,0
+4 this does not look very large considering that euro area countries already spend on average more than a quarter of their gdp on agerelated public expenditure,0
+the job of risk managers is also complicated by the fact that certain risks are hard to quantify and measure for example tail risks and that commonly agreed valuation models are missing for more complex securities,0
+in particular the cyclically adjusted priceearnings ratio remains moderate in contrast to developments in the us see figure 3 chart on the left,0
+nevertheless the structural changes that i just mentioned are also growing in europe and we have to reflect on the possible limitations of monetary policy transmission by only influencing the very short end of moneymarket rates,0
+but we have a forwardlooking approach and both the montary indicators and the assessment of all other indicators pointed to risks on the upward side of price stability,0
+another factor which contributed to the accumulation of imbalances was the rise in public sector wages,0
+however i must also confess that other macroeconomic policies have not lived up to expectations,0
+such strain could become unbearable or to put it less dramatically could lead to a dangerously unbalanced policy mix if it were compounded by the consequences of initially weak budgetary positions in the member countries,0
+their weak profitability can not only be attributed to the weak macrofinancial environment but more importantly to structural factors,0
+but the key point is that the possibility of financial distress in case of major price corrections is not explicitly taken into account ex ante,0
+it relates instead to the objective of making a sdrm possible which would be difficult to activate if it entailed large losses by banks with portfolios concentrated on the restructured debt,0
+for policymakers this is a challenge as it makes it significantly more difficult to predict the effect of fluctuations in currency markets on domestic inflation,0
+for instance monetary policy cannot offset the shortterm impact on the price level of an unanticipated rise in commodity prices or indirect taxes,0
+this may in turn complicate the sustainable fulfilment of the convergence criteria especially when combined with cyclical challenges to macroeconomic stability which leads me to my third point,0
+this meant that structured investment vehicles sivs hedge funds and other investors suffered losses in relation to the value of these securities,0
+unfortunately it is very difficult to detect this hypothesis on empirical grounds from an aggregate economic viewpoint,0
+however there are still higher costs for issuers when approaching investors from several countries at the same time,0
+looking ahead headline inflation is expected to decline further in the near term while the implications of the coronavirus crisis for inflation over the medium term are surrounded by high uncertainty,0
+however in such a situation the outlook for the economy and prices has considerable downside risks so the direction of financial stability and price stability actions eg,0
+higher leverage can flatter measured profitability but as we saw in the crisis it comes with a greater risk of financial instability,0
+the more significant risk in the horizon is a possible reversal of risk assessment in international financial markets with the consequent asset price downward corrections,0
+otherwise expanding the deficit during a downturn could raise concerns about the sustainability of public finances which would undermine the effectiveness of stabilisation policy7,0
+this suggests that euro area corporations face serious problems on the demand side which seem to be more pressing than the problems stemming from the bank lending channel,0
+from a monetary policy point of view they are clearly a cause for concern as they add to upward pressure on consumer prices in the euro area,0
+my tentative answer to this question is that a competitionoriented policy towards the banking industry may face certain limitations which today are still not as clearly perceived as they might be in a few years time,0
+fire sales would weigh on profits further deteriorating banks capital positions generating in the process negative externalities and suboptimal collective behaviour,0
+on the other hand we are fully aware of the downward risks that a protracted period of low inflation entails,0
+here particularly the credit side presents itself as still sluggish thus pointing to subdued price developments in the medium term future,0
+to my mind the criticism reflects a notion of lenderoflastresort operations that is largely outdated it underestimates the eurosystems capacity to act and finally it represents too mechanistic a view of how a crisis is and should be managed in practice,0
+a serious problem is in evidence here for monetary union in general and for the european central bank in particular,0
+the economy may then enter on a selfsustaining spiral declining inflation expectations shift down the phillips curve which puts downward pressure on actual inflation which in turn translates into a further decline in inflation expectations,0
+there are many reasons for this but in my view one important factor was the incomplete nature of financial integration in the euro area,0
+if the responsibility for higher investment and the associated costs were to fall exclusively on the shoulders of the individual member states it could lead  depending on the country  to underinvestment or a narrowing of fiscal space,0
+reading carefully what these analysts had written before the ecbs decision one notes that many had considered the support programme for greece as inappropriate and saw a restructuring as inevitable,0
+a third related factor is insufficient macroeconomic discipline,0
+as for these investors increasingly complicated financial structures made it difficult for them to assess the quality of the assets that they were acquiring,0
+concerns about the soundness of fiscal policies are a broader phenomenon as for example discussed in imf research and highlighted by the recent lowering of the outlook for the us sovereign debt rating,0
+this brings me to the third phase of the crisis the crosswinds in recent years the continued decline in inflation rates in the euro area called for additional nonstandard measures  i am referring of course to the asset purchase programmes,0
+fiscal developments in the euro area in 2004 were far from satisfactory,0
+youre justifying your reference to the m3 indicator by the fact that the main risk is an inflationary one but youre talking about uncertainty as well with regard to a slow down in growth and its impact,0
+finally the fact that libra is backed by a basket of sovereign currencydenominated assets appears to defeat the very purpose of its issuance as a private currency,0
+the current sovereign debt crisis in the euro area has exposed these shortcomings,0
+for the euro area the last few years have been especially turbulent,0
+the imf currently predicts that the euro areas aggregate fiscal deficit will be 51 of gdp next year,0
+similarly when i speak to american colleagues i often hear how the euro areas reaction to the ongoing crisis is seen as key risk factor for the outlook there,0
+it operated in both directions either the support of banks overburdened the sovereign or the sovereign weakness led the domestic banks to take on more recently a higher share of national public debt,0
+the ecb cannot commit itself to take into account in its overall assessment any announced but as yet uncertain fiscal consolidation in some of the member states,0
+with the apparent cyclical slowdown in economic growth in the euro area the balance of risks to future price stability moved significantly to the downside,0
+a number of important challenges lie ahead for european policymakers which also relate to the euro,0
+the macroeconomic environment is occasionally bleak and some sectors are in the midst of restructuring,0
+but secular trends do not explain fully the current situation,0
+so not only will banks fail in their macroeconomic stabilisation efforts they will also obstruct the efforts of monetary policy to play that role,0
+it is thus all the more surprising to see how in the current environment some policy makers academics or editorialists totally ignore the systemic dimension of financial markets in their proposals for very specific issues like for instance bank debt,0
+these losses may in turn have a destabilising effect on the banking sector,0
+however such an approach aimed at insuring against a possible deflation risk does come at a cost,0
+on the upside the main risks relate to further increases in indirect taxes and administered prices owing to the need for fiscal consolidation in the coming years,0
+getting normalisation right is no easy task as the euro area economy must contend with an outlook that is marked by exceptional uncertainty,0
+the first reason is the theoretical possibility that the economy possesses multiple equilibria so that an especially large negative shock may push it into a permanent underemployment equilibrium,0
+this in turn means a stronger contraction of corporate cash flows when policy rates increase,0
+yet it is biased in selecting instruments to counter vulnerabilities at the national level while having a tendency to disregard crossborder implications 1 such as leakages which may weaken the overall macroprudential stance,0
+such unbalanced growth also had important consequences for the fiscal accounts chart 9,0
+this is a very tangible issue also in italy where recent reforms of the debt enforcement claims have not yet produced the expected results and therefore have not influenced npl prices to the desired extent,0
+therefore a totally symmetric approach runs the risk that the surveillance lacks focus and becomes distracted from the most serious challenges to the monetary union which are significant losses of competitiveness persistent current account deficits unsustainable increases in asset prices including real estate prices and high external and internal levels of indebtedness,0
+1 euro area banks market valuations remain depressed with an average pricetobook ratio of around 06 mirroring concerns about weak current and expected profitability,0
+or to suboptimal diversification because of herding by uninformed investors,0
+too often the debtorcreditor dichotomy overshadows the debate of how we want to organise the economic governance of the euro area in the future,0
+the issue of a large and growing us current account deficit may be further exacerbated by the sustained increase in oil prices through the impact of oil imports on the us trade deficit,0
+the inevitable fiscal contraction can also impinge on the prospects for financial sector profitability and soundness,0
+5  the experience of the crisis also suggests that most investors hugely underestimated the risks of the most complex financial instruments,0
+as we have seen this year a failure in terms of surveillance can quickly result in a crisis in a member country which  no matter how small the country  spills over to the rest of the area via crossborder holdings of that countrys sovereign debt and more general confidence effects,0
+this would cause further lack of confidence and weakening of the currency as well as damage to eurolands economy and therefore also from my perspective to the uks trade patterns and its own economy,0
+euro area hicp inflation has been declining for several months after turning negative to minus 02 percent in august the flash estimate for september signals a further decline to minus 03 percent in september,0
+20 however as just mentioned the financial cycle differs from the business cycle in its amplitude which could at times require much larger shifts in the policy rate than would be warranted by the outlook for inflation,0
+not acting would in fact have amounted to deflecting responsibility for our mandate and risked accepting the kind of economic disorder experienced during the great depression as mentioned in my introduction,0
+one can imagine a situation for example where a particular class of investors is excluded from bailin owing to national political economy concerns,0
+let me recall in this context the 2003 parmalat scandal which highlighted the possible damage of such transactions for minority shareholders and other company stakeholders in a drastic manner,0
+ecb simulations showed that euro area gdp would be cumulatively at least 15 lower between 2015 and 2018 without the expansionary policy measures with worse outcomes for inflation,0
+however since interbank counterparties are much better informed than depositors this event would typically require the market to have a strong suspicion that the bank is actually insolvent,0
+without such convergence the monetary policy stance of the ecb is likely to be inappropriate for the country and it may face a risk of excessive output volatility leading potentially to a series of boombust cycles as the country lacks important tools to stabilise economic conditions at home,0
+yet it is clear that for all central banks the structural backdrop has made monetary policy normalisation slower,0
+a process of deleveraging and balance sheet repair will have to take place in several cases,0
+8 in other words the existence of macrofinancial information asymmetries result in adjustments of microcorporate financing decisions,0
+1 tonight i would like to add a couple of issues to that list which are partly related to the international dimension of fiscal policy often ignored by us academics,0
+the economic policy debate over recent years has been preoccupied with the european troubles  as the conference title indicates,0
+at the same time the information from the second pillar of our strategy showed clear downside risks to future price developments in april,0
+challenges and opportunities for the european banking sector almost ten years have elapsed since the turn of the financial cycle,0
+this in turn might have brought about an element of moral hazard namely overborrowing on the part of the countries and lenient risk management on the part of some private investors,0
+this is even more of an issue when the relevant staff members are physically located outside the euro area,0
+as a crisis in a country like greece representing only 2 of euro area gdp can become systemic disregarding emu governance may come at a high cost to taxpayers,0
+on the other hand an inefficient legal system may simply lead business to move elsewhere namely influence the quantities rather than prices,0
+conclusion in conclusion i believe that the crisis has exposed a couple of shortcomings in the monetary policy paradigm policy frameworks are insufficiently medium termoriented and the role of monetary variables in this context is underappreciated,0
+a repricing of sovereign risk of individual countries that was initially justified by higher expected solvency risks gradually turned into concerns about the viability and integrity of the euro area as a whole,0
+domestically a key headwind in the past has been the necessary deleveraging by firms and households,0
+i think that this argument is erroneous because it focuses in a rather excessive way on the ownership structure  an aspect to which i shall come later  which should not be used as the key criterion for assessing an industrys level of integration,0
+the third and final implication relates to the persistence of shocks and the inflationoutput tradeoff central banks may face,0
+it may also slow down necessary structural adjustments to the balance sheets of banks and ultimately to the business models of some financial institutions,0
+given this background it is striking that economists all too often assess the costs and benefits of european integration in purely economic terms and in a rather static context,0
+in the same vein the lack of transparency regarding the models and methodologies and the information used by credit rating agencies in producing their credit ratings limited the understanding of those ratings and obscured the true risk characteristics of the complex structured finance products,0
+however most policy decisions are confronted with similar informational problems and require a difficult evaluation of the statistical evidence,0
+shorttermoriented procyclical or undisciplined economic policies are immediately punished by the markets,0
+certainly if greece were to exit the euro  a hypothesis that i make just for the sake of reasoning but which i consider absurd  its debt burden would de facto worsen given that it is denominated in euro and partial default or restructuring would in that case be unavoidable,0
+a long period of low price pressures and years of repeated overprediction of the future path of inflation require that higher inflation prospects need to be visibly reflected in actual underlying inflation dynamics before they warrant a more fundamental reassessment of the mediumterm inflation outlook,0
+in the latter case it is obvious that any funding support from the eurosystem would have to be carefully reassessed as our operational framework serves the implementation of monetary policy and is not meant to cater for all individual banks liquidity needs irrespective of what causes them,0
+in this regard i would like to emphasise that what constitutes a severe problem is not so much the use of risk measures such as value at risk models like the singlefactor gaussian copula model for credit risk and risk opinions like external credit ratings but rather the lack of understanding of the limitations of those measures and models,0
+the risks of a lost decade in the euro area how likely is a fullblown japanstyle scenario in the euro area,0
+nevertheless shortterm political considerations or budgetary procedures themselves may lead governments to ignore financial market signals or at least to delay the budgetary action they need to take,0
+also if you look at the inflation figures in individual countries like for example the one that is to be published for germany soon that is the inflation figure for january that will reflect increases in prices in certain sectors due to an increase in indirect taxation in germany in the form of the ecotax which has been further increased as from 1st january or as a result of the cold weather in january which has made food prices higher than usual for that month even seasonally adjusted,0
+however in my opinion  an opinion that is widely shared  asset prices do not represent a suitable goal for monetary policy,0
+when imbalances are regional or sectoral in nature however interest rate policy would seem too blunt a tool,0
+also we have to bear in mind the overall fiscal consequences of tax reforms,0
+my point is rather that while the ongoing deleveraging in the banking sector certainly plays an important role in the inadequate current levels of credit supply to the real economy factors related to the demand side are even more important,0
+furthermore this adverse interaction would be reinforced if household spending were to weaken and thereby were to further dampen firm prospects,0
+at present banks generally have low revenues and profitability arising from several factors including legacy factors such as loan losses during the crisis cyclical factors such as the weak macroeconomy and in some cases regulatory factors such as the costs of adapting to new legislation,0
+unfortunately the latest available national account data released by eurostat in autumn 2007 have corroborated our concerns,0
+reflecting this deterioration estimates of losses facing banks on their commercial property loan portfolios had been revised upwards by almost 50 over the past six months as shown in chart 7 on slide 12 and concerns remain about concentrations of such exposures among some euro area banks,0
+for some i expect the main concern is constrained access to funding and too high interest rates,0
+the cost of such a doomed scenario on which not many have really thought thoroughly is immensely larger than implementing the adjustment that the greek society has to do in any case,0
+there may be many reasons why this has not fully happened ranging from conflicting shareholder interests to the protection of perceived national interests,0
+as gdp and consumption declined in the recent recession so did retail sales,0
+in the case of china the lack of marketdriven financial institutions  coupled with the lack of a social safety net to provide for health care education and pensions  may explain the buildup of excessive precautionary saving,0
+here we are faced with the question of the implications of this insourcing on the consolidation process as such,0
+in this case balance sheets are not only squeezed by the low profitability of assets but also by the high value of liabilities,0
+for instance intangible investment is difficult to collateralise and therefore harder to finance in a conventional bankcentred financial system like the one prevailing in continental europe,0
+taking a wicksellian perspective policy interest rates below the natural level would produce inflationary pressures while higher rates would push the economy into deflation,0
+presumably the opposite occurred in some previous year meaning recognition of profits when it may have suffered a decrease in its rating,0
+in such cases the release of information revealing the true creditworthiness of borrowers may result in a disorderly withdrawal of funds when lenders realise that they do not have sufficient capital to buffer possible credit losses,0
+the estimates also show the degree of model uncertainty surrounding the measurement of the equilibrium real rate which of course compound to the parameter uncertainty,0
+first and foremost this is because it is still largely driven by national considerations but also because the evolutions that have occurred since the crisis still leave some key issues unresolved,0
+see romer 1993 for a similar argument related to openness as a factor that leads to increasing t costs of an inflationary monetary policy due to fears of capital outflows,0
+the interplay between fiscal and monetary policy while the current challenges for monetary policy are immense those for fiscal policy are even greater,0
+this is the blue part in the chart which you can see shifted into negative territory after our decision in early december to extend the intended horizon of the app by another nine months,0
+while the impact of future euro area entrants on the areas economic and monetary aggregates should not be overstated given that the gdp of the new eu countries amounts to around 6 percent of the euro area gdp a divergence of their inflation rates following the adoption of the euro would entail specific risks for these countries,0
+9 beyond cyclical and financial factors such as weak demand uncertainty and excessive corporate debt levels10 structural factors such as weak economic institutions and rigid product and labour markets can also play a negative role,0
+first of all not acting forcefully would have had very serious financial stability implications,0
+naturally this monetary policy mandate has implicit consquences for fiscal policies and wage setting behaviour and this is what europe still needs to fully adjust to,0
+they may face the threat of a protracted period of low growth,0
+in addition there could be negative confidence effects which would further depress us gdp,0
+consequently as these factors work in different directions it is difficult to foresee the longerterm trend in banknote developments,0
+this is important because if markets cannot ascertain ex ante how resolution will be financed and in what quantities they may find themselves having to pricein a residual risk of national government involvement thus perpetuating the banksovereign nexus,0
+it is important to note that when price changes occur in the euro area they tend to be rather large in the range of 8 to 10 at the retail level,0
+one of the practical problems when following this path is that banking regulation is an issue that affects the entire single market involving the 27 eu countries not just those of the euro,0
+as the euro enters its second decade conditions arent exactly auspicious as we are facing the most serious economic crisis since world war ii,0
+19 from a macroeconomic perspective protectionism can be interpreted as a negative supply shock,0
+bankers with perhaps too narrow a technical focus have failed to fully realise the psychological social and political dimension involved in preparing retail payments for the euro,0
+a protracted period of deleveraging in the euro area similar to the one which occurred in japan in the 1990s could also have pushed the natural real rate down even into negative territory and potentially for a long time,0
+the risks surrounding this economic outlook remain on the downside,0
+these include the 1987 us stock market crash the russian default in 1998 the long term capital management ltcm episode in the same year and most recently the period following the credit downgrades of general motors and ford in may 2005,0
+while the first phase of the crisis can be interpreted as a severe recession amenable to monetary policy this second phase was the consequence of institutional challenges that monetary policy could only aim to mitigate but could not overcome,0
+owing in part to this premium the refinancing conditions of many commercial banks  and thereby the real economy  deteriorated dramatically,0
+this would have led not only to central banks failing their mandates but to the whole economy sinking into a prolonged depression  just as had happened in the 1930s,0
+in the same vein weak prospects for the labour market will dampen consumption growth,0
+at the same time sovereign liabilities can undermine domestic banking sectors given the high exposure of euro area banks to their own governments debt and the link made by markets of the cost of funding of banks with that of their respective sovereign,0
+the socalled core measures of inflation  which strip out volatile components  have also been drifting down since mid2012 when the euro crisis hit its climax and have been hovering around 1 for nearly two years,0
+but strategic interactions have not been studied much in the context of cbdcs and the international dimension even less so,0
+only when this situation continues for too lengthy a period  the european central banks last convergence report spoke of a prolonged period of time  would doubts arise as to whether the central bank can still adequately fulfil its eurosystem monetary policy tasks,0
+the most obvious one is the sovereign debt crisis with the associated fragmentation of credit markets across national borders and more recently the breakup fears,0
+on the demand side just bear in mind that since 2007 private investment in the euro area has fallen by 15 and public investment by 12,0
+the example of japan shows that such a decoupling can directly endanger price stability,0
+10moodys noted that european policymakers have grown increasingly concerned about the shifting of greek debt held by private investors onto the balance sheets of the official sector,0
+structural challenges are a third factor in weak profitability,0
+as we saw during the crisis if perceptions of sustainability among markets decline then countercyclical spending can quickly become constrained,0
+yet the scope of the required adjustment in the euro area when viewed at the aggregate level differs markedly from that in japan even if some euro area countries struggle with excessive leverage  in japan the sharp fall in equity prices from the peak of 1989 led to losses of almost 80 in the two decades that followed,0
+sound fiscal policy is a precondition for sustained competitiveness  some observers are concerned that fiscal consolidation at the current juncture might dampen economic growth and also provide negative externalities by constraining demand for trading partners,0
+to a large extent these provisions still related to securitised loans although the share of loan impairments had started to grow,0
+such benchmarks need to be even more ambitious if a countrys debt exceeds the reference value of 60 of gdp or there are fiscal sustainability risks,0
+after the collapse of lehman brothers the turmoil mutated into a fullyfledged financial crisis,0
+moreover the situation is more complex if there are impairments in monetary policy transmission that extend the lag between our decisions and their impact on prices as we see in the euro area today,0
+in particular in spain the current account reached a deficit of 10 of gdp,0
+the factors i see are the persistent enormous balance of payments deficit of the united states approaching now a figure in the order of  300 billion per year,0
+conclusion the outcome of this kind of process would certainly not be optimal from a purely economic standpoint,0
+due to a current lack of statistics in the eu empirical analysis is even more limited and almost entirely uscentred,0
+it is an important lesson which is not only evidenced by events in the history of central banking but also by the academic literature that any blurring of responsibilities can potentially lead to a loss of credibility for the central bank,0
+as growing financial market tensions made the financing of these deficits ever more difficult the last and most unexpected layer of the iceberg namely the socalled redenomination risk the possibility of a breakup of the euro area  came to the surface in the middle of last year,0
+these uncertainties have proven to be more persistent than expected and this is clearly impacting on the euro area,0
+this is in fact the most difficult question to answer not only because downturns are difficult to forecast but also because the cost of a policy mistake at that stage is higher and there is less room to make up for it later on,0
+the underlying reasons were several there were shortcomings in governance both national and supranational flaws in the design of the euro area misjudgements by regulators and supervisors and also insufficient scrutiny by financial market participants as well as by credit rating agencies,0
+but what we saw was that inflation expectations were tending at all horizons to become disanchored from our price stability objective and increasingly affected by the low level of current inflation,0
+and for economic policies rulesbased approaches  such as the macroeconomic imbalance procedure  have so far not attracted much ownership from national policymakers,0
+on the other hand the suspicion that the maastricht criteria would tolerate a large dispersion of economic performances across countries produced anxiety that monetary union  if it were ever to materialise  could mean convergence to the average rather than the best standards of macroeconomic discipline,0
+for small countries there is an incentive for an expansionary fiscal bias which could threaten sustainability because the common interest and exchange rate might adjust only marginally to their fiscal imbalances,0
+the main drawback to survivors pay schemes has been a very large potential liability of the survivors given the large values that are transferred through the system,0
+because the public sector makes up roughly half the economy in many euro area countries and because of credit rating dynamics the fear of possible sovereign defaults had a dramatic effect on confidence in the domestic private sector,0
+on the other hand lies a minefield of potential conflicts with other actors in the economic policy field,0
+vice versa fiscal sustainability concerns have rapidly spilled over to the financial sector thus giving rise to a vicious cycle that is difficult to break,0
+the second shortcoming of this paradigm is its undue focus on small economic fluctuations around benign states of the economy,0
+as the amc would be in an equally difficult legal position as the originating banks the synergies it could reap would be very moderate,0
+developments in the exchange rate of the euro thus remain a concern with regard to future price stability,0
+in general a monetary policy of leaning against the wind for financial stability reasons could induce significant output losses,0
+while that is in the nature of small and mediumsized institutions with a regional focus it also creates a dependency which makes them vulnerable,0
+ageing is going to translate into significant additional budget costs generally estimated for the next few decades and only for pensions at between 3 and 5 of gdp in the majority of european countries,0
+a process of deleveraging and balance sheet repairment will have to take place in several cases,0
+in that case trying to stimulate growth and reduce unemployment to achieve the precrisis equilibrium through macroeconomic policies as some are suggesting might only delay the adjustment and lead again to an unbalanced path,0
+14 this could in turn have an impact on market functioning and real interest rates with undesirable implications from a monetary policy perspective,0
+the canonical model of monetary policy neglected the role of monetary aggregates and of their counterparts emphasising the output gap as the main indicator of inflationary pressures,0
+these observers therefore formed an incomplete view of the strategy as a whole,0
+and if that happens it would add to one of the problems some banks already have profitability,0
+this meant that weak credit dynamics were increasingly becoming a source of downside pressures regarding our mediumterm inflation outlook,0
+otherwise  even in the absence of a crisis  a readily convertible cbdc could crowd out bank deposits leading to the disintermediation of the banking sector,0
+the most prominent reason for this is of course the scenario where the provision of liquidity from the central bank has to be made in a situation that is generated by problems of interest to the supervisor,0
+7  even without stress testing it is easy to understand that a ccp under stress would send a liquidity shockwave across its participants and beyond as it requires additional margins andor passes on losses,0
+this would be particularly true during a period when the economy is subject to supplyside shocks which are exerting simultaneously inflationary and recessionary influences,0
+on the contrary this could have an impact on the business model of banks and insurance companies and impair their capacity to perform financial intermediation and support monetary policy transmission,0
+the best variant from this perspective implies that the output gap was as large as 6 in 2014 and 2015 on average an estimate which is considerably more negative than most official estimates hovering between 2 and 3 for those years,0
+if left to its own devices as we saw in the first half of 2012 deintegration can lead to expectations of disintegration  a euro breakup which the ecb had to counteract by announcing the outright monetary transactions omts,0
+but then there are also problems also incompleteness in the economic and monetary union,0
+under these circumstances it was unavoidable that fiscal consolidation was frontloaded,0
+as a result further adjustments to the fair values of these assets become necessary thereby perpetuating the downward dynamics,0
+however the outlook in the euro area became increasingly gloomy in the second half of 1998 as a result of the crises in asia and in russia thereby causing inflationary pressure to weaken further,0
+for years the problem of the sustainability of americas external imbalance has been emphasised especially in europe which feared the risk of a disorderly unwinding with destabilising effects on the financial markets,0
+what many analysts  or i should say doomsayers  have not understood is that the debt problem is the biggest incentive for greece to remain in the euro area,0
+as those economies represented a third of euro area gdp this posed a profound threat to price stability,0
+certain critics also take the view that the lack of inflation targeting in the short term makes the intentions of the governing council somewhat obscure,0
+overall annual real gdp growth in the euro area is estimated to have been a disappointing 08 in 2002 after amounting to 14 in 2001,0
+as regards medium to longerterm prospects for price developments the monetary analysis continues to point to upside risks to price stability,0
+for instance without a credible supervisory framework a central bank may unwittingly end up in a position of financing counterparties that it thinks are illiquid but solvent  as it would be appropriate by its own statute  but transpire to be outright insolvent,0
+but let me also say that the added precision would not only run counter to the institutional framework in place but would also imply undue rigidity leading to mechanistic assessments that would benefit no one,0
+a key explanation is that the adjustment process has been hindered by adverse feedback loops resulting from the interaction of accumulated fiscal and macroeconomic imbalances weak bank balance sheets and the lack of a genuinely european approach to bank resolution and recapitalisation,0
+on the other hand ailing banking sectors increase the burdens faced by governments,0
+the risk to inflation expectations is especially relevant in the context of the euro area since inflation has already been below target for a prolonged period,0
+6 macroprudential policy is a good example of this pretence lacking even a capacity to define its own objective otherwise then by its negative,0
+indeed the impact of demographic change on inflation is unclear,0
+that in turn worsened the macroeconomic environment in which monetary policy had to operate,0
+if european policymakers decided to follow their american counterparts neglecting the different structure and shocks this would result in destabilising economic policies which would bring us to the high inflation and profligate fiscal policies of the 1970s,0
+economic and monetary developments in 2011 2011 continued to be an exceptional year confronting the ecb again with rather challenging economic and financial conditions,0
+and that loss of credibility would in turn make it harder for us to deliver our mandate in the future,0
+at the same time the ecb as a new institution faced a deeper set of uncertainties in managing a new currency area,0
+in this regard keeping fragmented markets in the euro zone would not only mean lost opportunities but also less effective monetary policy,0
+one of the factors weighing on profitability is the low growth and low inflation environment which translates into lower levels of policy interest rates,0
+this was unwarranted in view of our underlying macroeconomic conditions and was not in line with the governing councils policy intentions,0
+they also seem to fear the risk of not being able themselves to access funding in the market if needed in particular towards the end of the year when financial accounts will be completed,0
+41 the potential impact of aging on asset prices     to what extent and in what way do the increased saving of a diminishing group of younger people and the greater dissaving of a growing group of pensioners influence asset prices,0
+the wide perception in the markets is that financial institutions face difficulties in maintaining earnings due to falling credit quality and declining fee income in a macroeconomic environment already taxed by sharp rises in real production costs,0
+other example of costpush shocks may be wage increases that are not justified by productivity gains,0
+looking ahead bank profitability is expected to remain weak and not to recover to precovid19 levels before 2022,0
+8 a similar phenomenon has been observed in france where sizecontingent regulations appear to cause firms to cluster below 50 employees,0
+a further oftencited factor is demographics  and especially the trend towards greater longevity  which may have interacted with cyclical conditions by inducing households to save more and ultimately put downward pressure on inflation,0
+however they may signal both a reduced willingness on the part of investors to provide longterm funding as well as difficulty in accessing capital market funds,0
+in addition social costs arise because the weaker members of society have more difficulty in protecting themselves against the adverse effects of inflation,0
+what were portrayed as increases in equilibrium leverage ratios were in fact an accumulation of financial imbalances,0
+the recent economic crisis was also in large part a crisis in economic thinking paralysing policy institutions when they needed to act,0
+a possible interpretation of this joint movement is that investors have downgraded estimates of trend global growth prospects which feeds into lower estimates of equilibrium real rates and a reduction in expected inflation rates,0
+the european monetary union was clearly facing then an existential crisis,0
+at the same time the shift between types of pension schemes transfers the longevity risk of the individual into a future income risk for the individual,0
+the main challenge for this view has been to spell out the market forces that would push inflation up in the wake of a nominal rate hike,0
+conversely the longterm costs of not consolidating can be nonlinear and unpredictable,0
+on one hand it may need to provide backstops to remove tail risks that could otherwise result in severe downward pressure on price stability,0
+there are of course many more challenges and these affect banks not only in europe but worldwide,0
+at the same time the overhang of public and private debt and their interaction through the banksovereign nexus impairs the use of fiscal policy and places a greater burden on monetary policy to carry out that stabilisation,0
+because the principle of subsidiarity assigns to the european authority tasks that cannot be effectively carried out at the national level,0
+the second comment that i would like to make is that the whole discussion about the recessionary effects of fiscal retrenchments is flawed,0
+and what is more when public authorities in the euro area did intervene to backstop their national banking sectors the fiscal implications naturally differed the onus fell entirely on national budgets,0
+but this is not to say that the sector will not face headwinds in the future,0
+in this case liquidity conditions would remain scarce leading to a credit crunch with recessionary and deflationary risks,0
+if that does not happen we might face an adverse scenario of a slower closure of the output gap and renewed disinflationary pressures once bad inflation subsides,0
+looking ahead the income balance could turn negative as us interest rates continue to rise,0
+finally it can exacerbate the impact of conflicts of interest and perverse incentives that exist both at the top and at lower management levels,0
+on the contrary the whole question of the socalled conundrum has emerged while monetary accommodation was being withdrawn in particularly in the us,0
+on the nominal side however we perceived that the downside risks to the inflation outlook had increased especially given continued declines in oil prices and a large output gap,0
+historical experience shows that discretionary fiscal policies are  especially in view of the implementation and impact lags involved  a blunt and imprecise instrument when it comes to responding to cyclical fluctuations,0
+during the great recession when the ecb balance sheet started its expansion m3 growth fell dramatically to negative levels,0
+at the same time domestic policy choices in china as well as us export controls on key technologies are likely to affect chinas place in the global production network,0
+certainly the euro has performed a role that nobody expected at the start being the scapegoat for a whole series of negative developments at national and european level,0
+1  selecting the effective tool was essential a restriction of instruments  for instance by restraining the central bank to the use of key interest rates as the sole monetary policy tool  would have possibly he led to a disastrous outcome for euro area,0
+have financial investors played a stabilising or a destabilizing role at a time of booming commodity prices and heightened uncertainty about their longterm fundamentals,0
+this idea that there could be a tradeoff between structural reforms and macroeconomic accommodation is disputable notably in the emu,0
+13 however they also suffered noticeable valuation losses,0
+on the other hand the external demand for eurodenominated assets may affect domestic monetary aggregates complicating their relationship with inflation over the long run,0
+macroeconomic policies added to the risks,0
+on the other hand the effectiveness of the purchase programme is declining over time the side effects are increasing,0
+to conclude this part the ecbs monetary policy strategy could only be identified with inflation targeting if we interpreted the abovementioned conditions of an inflation targeting strategy in a too flexible way,0
+balance sheet recessions one important question raised by the crisis and its aftermath is the following are balance sheet recessions different from normal recessions and do they call for a different monetary policy treatment,0
+mr duisenberg    i have my thoughts about these questions i have my internal judgement but i am sitting here as president of the ecb responsible for the entire euro area so i am afraid that apart from saying one thing about the holzmann case that i will not be in a position to go into these particular microregional affairs,0
+that has to be borne at that time by someone and we think it is very likely that it is the government that has to bear the bulk of those costs,0
+euro area    the significant intensification of the financial crisis since mid september has greatly affected the outlook for shortterm economic growth in the euro area,0
+in particular they are exposed to capital flows which are a potential source of high volatility in domestic monetary and credit aggregates,0
+the first relates to financial stability considerations  that is the potential side effects of central banks being active players in bond markets for a protracted period of time,0
+what i did signify and felt obliged to signify was that current developments in the fiscal field seem to point to a weakened tendency to proceed further in that process,0
+its root cause lies in lax fiscal policies and associated deteriorating public finances in some euro area countries,0
+in consequence the recent decline in these prices is both disinflationary and expansionary,0
+this has already led analysts to cut bank profitability forecasts for 2022 due to increased provisioning expectations,0
+a return of macroeconomic policy to the prepandemic status quo would be an immense wasted opportunity,0
+the mediumterm orientation of our strategy acknowledges that  in view of long variable and uncertain transmission lags  monetary policy is not equipped to control price developments at short horizons,0
+according to standard macroeconomic analysis if the interest rate is systematically below its neutral level monetary policy is expansionary and might ultimately fuel inflationary pressures,0
+yet from the perspective of society as a whole the creation of additional money would entail higher costs as the currency would be debased as a store of value and its exchange services in transactions would be degraded,0
+i think that the climate in europe is in fact deteriorating in this respect and there is the risk that we will have markets that close in on themselves,0
+in practice however the macroprudential framework in the euro area remains incomplete making the separation principle untenable for two main reasons,0
+first beyond these regulatory and supervisory challenges a successful crisis resolution will also impinge on economic structures world wide,0
+however one should also mention the fact that a relaxation of fiscal policies and higher wage increases could lead to a reversal of current developments in consumer prices and undermine confidence,0
+7 this is particularly the case for young unemployed people who risk losing important experience in their formative years,0
+on the one hand there is obviously an augmented risk of crossborder contagion of asymmetric shocks to the rest of the world if crossborder asset holding is widespread,0
+china for example has run a surplus of up to 10 of gdp while the us deficit has reached up to 6 of gdp,0
+8  the capital and borrowerbased macroprudential instruments i just mentioned are targeting risks among the banking sector and the real economy,0
+we would pay a high price in terms of our credibility if we failed to adapt our forward guidance once we had changed our views on the outlook,0
+and third because our analysis was that market participants  by possibly overassessing medium and longterm inflationary expectations  were pushing up medium and longterm market rates at a moment when it was not necessarily advisable in our own judgement,0
+if the responsibility for these higher investments and the associated costs were to fall exclusively on the shoulders of the individual member states this could lead to underinvestment a less coherent and effective response to current shocks and a narrowing of fiscal space,0
+these include institutionspecific factors such as limited operational capacity or the lack of adequate management experience,0
+in the case of the role of financial frictions  which i consider to be especially important  i am somewhat sceptical of its inclusion in the core principles at this stage because we have not yet reached the state of knowledge to incorporate financial frictions fully in the monetary policy framework in a generally acceptable manner,0
+when looking at these market prices however one has to bear in mind that the spread between these nominal and real yields not only measures market participants inflation expectations but also includes the inflation uncertainty risk premium required by investors as compensation for the risk of a loss in purchasing power,0
+in addition the commitment to fight inflation might be undermined over time as the real value of larger government debt can be reduced by higher inflation,0
+but similar to fiscal policies an inconsistent framework also undermined the value of prudential policy itself,0
+for two reasons first the german budget was threatening to go in the direction of the famous 3 limit but it was not there yet,0
+these and other concerns had been expressed in various documents speeches and statements back in 2006 and even before for example in the ecbs financial stability reviews of june and december 2006,0
+uncertainty about parameters confronts all central banks but seems particularly relevant for empirical models of the euro area since their estimation has to rely on historical back data which stem from the period prior to the formation of economic and monetary union emu when the member countries experienced different monetary policy regimes within different institutional settings and data were not always sufficiently harmonised,0
+this is first of all because at the zero lower bound falling inflation implies rising real interest rates causing households to postpone consumption and firms to delay investment which can then feedback into still lower inflation,0
+is it right to say that there might be a risk that we are coming into the japanese situation where the governments dont take the structural measures that are needed,0
+however all this has to be weighed against the offsetting considerations that i just described,0
+also the possibility has been used by the ecb to signal clearly to the markets when the prevailing expectations did not coincide with its own assessment of the interest rate path leading to an immediate correction,0
+take the example of openended investment funds in which case equity is redeemable at short notice creating the possibility of disturbing liquidity pressures,0
+for investors whose business models are centred around fixed income this is undoubtedly a very challenging environment,0
+i am aware of course that the formulation of such a view which is always problematic is particularly difficult in economies that are still involved in a transition and convergence process,0
+on the one hand this reflects the fact that prudential supervision is a matter where political interests are typically strong for various reasons for example providing credit to an insolvent bank is ultimately financed out of taxpayers money,0
+of course the costs of such protection have to be borne by consumers in the form of overly high prices and by the unemployed in the form of fewer opportunities for new jobs,0
+consumer and business sentiment indicators for april have in fact plunged suggesting an even larger contraction in the second quarter,0
+the latter means for example that crossborder euro area exposures are still considered as international exposures from a regulatory perspective which may lead to additional capital charges for systemically important banks,0
+conversely financial imbalances can be a genuine threat to price stability in addition to being extremely costly from a macroeconomic perspective,0
+there is currently much discussion on the keynesian and nonkeynesian effects of fiscal retrenchment but i do not wish to go into that,0
+in this context i would like to mention in particular the improvements to monetary and financial institutions mfi balance sheet statistics which have raised some concerns among the reporting agents,0
+in addition we are faced with challenges relating to the fiscal situation in a number of european countries,0
+however problems for eu banks could arise if a fall in stock prices entails secondround effects such as a significant slowdown in economic growth leading to a further recession,0
+a recent study 4 of the centre for european policy studies makes for sobering reading suggesting that the prospective decline in the working age population averaging 06 per annum until 2030 would translate to an annual growth rate of about only 1 to 15 until 2030,0
+second the macroprudential toolkit that has been legislated is not complete  notably the one entrusted to the ecbssm  because it is mostly centred on banks and excludes other activities and institutions namely the socalled shadow banking,0
+i think you can look at the other side of the coin and say we have to have a longterm vision and perhaps there actually is a fear of inflation there,0
+nevertheless the indicator has remained above the levels of summer of 2008 which suggests that market participants continued to assign a relatively high probability to systemic defaults by both euro area and global lcbgs,0
+at the same time this shift could question chinas role as a source of global demand depressing investment and equity values for european firms,0
+this is particularly the case in societies which are based on economic stability such as germany and which are not used to managing crises especially those of a financial kind,0
+during the euro area sovereign bond market crisis and especially in the second half of 2011 countryspecific developments were increasingly apparent,0
+from an economic perspective what may be even more important is the possibility that below a certain threshold called by some economists the reversal rate policy rates going further into negative territory may become counterproductive,0
+under this scenario premature monetary tightening runs the risk of an economic slowdown and a reversal in the mediumterm inflation dynamic derailing the prospects of ultimate convergence to the inflation target,0
+it is also unclear what role the public and in particular central banks should play in this regard,0
+on the one hand the external environment could again deteriorate if the financial crises in asia and russia were to spread or deepen further,0
+first take the fact that in calculating the probability of default of mortgages in a large economy the possibility of a drop in real estate prices or the ongoing deterioration in lending standards were not properly factored in or even totally disregarded,0
+there may be cases such as certain types of pension reform where structural reforms have clear upfront fiscal costs but longterm benefits that could justify temporarily higher deficits,0
+comparing the two scenarios would show that the expansionary and uncontrolled fiscal policy scenario is recessionary not the timely adjustment one,0
+the prospective budgetary costs of population ageing also cast a shadow over the longterm fiscal outlook for most euro area countries,0
+the ecb is nevertheless acutely aware that the regime shift accompanying the introduction of the euro will almost certainly bring in its wake short run behavioural discontinuities that are likely to make the job of the ecb an awful lot more difficult,0
+institutional reform in the financial sector the challenges of conducting and implementing monetary policy in the current environment are a fitting reminder of a more general challenge,0
+on the other hand market expectations of ten years german and spanish sovereign bonds yields five years from now are respectively 15 and 33 and only move to 176 and 39 when assessed ten years from now figure 5 rhs,0
+we have moved into the third phase of the crisis in which the financial markets have begun to question the sustainability of economic policies in particular as regards public finances and consequently the sustainability of the economic recovery itself,0
+maintaining such a sizeable portfolio will exert lasting downward pressure on term premia,0
+5  all this has meant that external shocks have seeped into underlying inflation  the part of inflation which is typically more sticky,0
+what seems to make this unavoidable it is not only the emergence of the euro the increasing strength of china or the growing vulnerabilities of the us,0
+at the same time future price developments in greece are subject to a number of upward risks in particular in 2001,0
+from the market behaviour point of view macroeconomic policies which accommodate asset price developments during periods of financial market turmoil easily lead to problems of moral hazard with falling risk premia thereby artificially driving up asset prices,0
+it is easy to see that if fiscal policy is loosened during an expansion or tightened during a recession the burden on the central bank to stabilise the economy increases mechanically,0
+second we have seen during the crisis that without monetary policy instruments at the national level fiscal policies can become overwhelmed if countryspecific shocks are very large and not well catered for by the shockabsorbing capacity of the economy and the financial sector,0
+1  without stronger potential growth the cyclical recovery we are now seeing globally will ultimately converge downwards to those slower growth rates,0
+the benefits of hindsight are enormous  but also potentially misleading,0
+what are the shortcomings of the present nonsystem  besides the persistent external imbalances there are many other shortcomings being mentioned about the present nonsystem,0
+these may be triggered if funds are confronted with strong redemptions or increased margin requirements as these could result in forced selling into markets with low liquidity,0
+this was so because those crises had revealed  and exacerbated  the underlying weaknesses in the institutional architecture of the union,0
+however even if such attribution is misleading it demonstrates that the three dimensions of the crisis interact in a way that creates a political trap in which political consensus is hampered by a wrong diagnosis of the crisis thus delaying the necessary policy shifts,0
+on the downside the negative feedback between the real economy and the still strained financial sector may prove more protracted than expected,0
+first the nature of the inflation shock we are facing in the euro area today and second the implications this has for monetary policy now and in the future,0
+protracted market illiquidity can also have potential negative repercussions for the banking sector and the economy as a whole,0
+11 given the current set up g20 decisions are often difficult to convey and explain at the domestic level,0
+the first relates to the fact that the priority goals of monetary policy may require an expansionary restrictive stance when asset markets would require restrictive expansionary measures,0
+such a tradeoff would not solve the implementation challenges of leaningagainstthewind while it may rekindle the deeper policy challenges that central banks encountered in the past when they sacrificed price stability for other policy concerns,0
+from a domestic perspective the fact that the g20 might appear distant to citizens is not helpful to strengthen its legitimacy given as it has been observed that it is intrinsically linked to local proximity,0
+the second alternative explanation is that policy decisions may have contributed to the drop in us savings and the rise in particular in private consumption which may ultimately have contributed to the buildup of the current global imbalances,0
+13  second there are signs that the global economy could increasingly be a source of shocks for europe rather than a stabiliser against volatility,0
+we have seen a weakening in the euro areas growth momentum over the summer and the euro area economic outlook is surrounded by a number of downside risks,0
+in the 2000s the cypriot economy evolved towards a rather unbalanced business model with an inordinate weight for the financial industry,0
+in addition there are still many uncertainties as to the structural developments and policies affecting the future of the euro area economies,0
+the latest information and the commissions forecast today indicate a serious fiscal deterioration,0
+5 although this is already a serious problem in itself6 a close examination of the composition of potential output uncovers the full extent of the problem,0
+24        concluding remarks    what makes trend productivity developments particularly difficult to factor in is the fact that they are extremely hard to gauge in real time and subject to recurring changes,0
+the ecbs adoption of forward guidance in july 2013 was largely the result of these unwarranted developments,0
+cyclical developments are also interacting with structural developments notably the structural deleveraging of the banking system,0
+however it should also be recalled that this event occurred against a backdrop of rather benign market conditions and it cannot be excluded that in a more challenging market environment such as that which characterised markets after the russian crisis in august 1998 the impact of such an event could have been more disruptive,0
+these costs together with the expected adverse fiscal impact of population ageing pose considerable risks to future fiscal sustainability,0
+4 see oecd 2004 structural policy reforms and external imbalances,0
+what started as a liquidity crisis in the money market in 2007 quickly morphed into a fullblown financial crisis following lehmans collapse in autumn 2008 and finally into a sovereign debt crisis starting in may 2010,0
+however this was not the entire story  surveillance instruments were lacking altogether as regards the buildup of competitiveness losses and of macroeconomic imbalances which have made any solution to fiscal problems even more challenging,0
+however when the economy is at the zlb a negative channel also appears since nominal interest rates cannot be reduced any fall in inflation translates into an increase of the real interest rate generating contractionary effects,0
+if it were to flow away because interest rates elsewhere were more attractive and given the risks for the exchange rate that would go along with that then it could happen that at some point there would be repercussions on the growth rate of the monetary aggregate,0
+18 such spirals could be triggered if funds were to be confronted with high redemptions19 or increased margin requirements as these could result in forced selling on markets with low liquidity,0
+max webers considerations pivoted around a potential dilemma between the ethical values of the means and the ultimate ends of public policies,0
+3  towards the end of 2015 significant risks to the inflation outlook started to materialise,0
+perhaps most importantly persistently low profitability can limit banks ability to generate capital organically,0
+it is interesting to note that the other two measures that directly relate to the financing of the banking system have not led to as many discussions even though they also involve a risk of interference specifically with the prudential supervisory authorities,0
+as we can see in chart 17 annual m3 growth decelerated further in the first quarter of 2009 compared with previous quarters,0
+and this is captured by monetary data and credit data which as i have mentioned are still very subdued,0
+by contrast there are also historical examples of countries which have resisted the internationalisation of their respective currency owing mainly to increased uncertainties about the conduct of macroeconomic policies in general and about monetary policy in particular,0
+this can be partially offset by the fact that the income and spending of net savers will be negatively affected by a decline in interest rates,0
+the political costs were seen as too high and the pressure from the eu level as too intangible,0
+if the ecb had not provided liquidity there would have been bailouts abrupt debt reduction and thus a deepening of the recession  and this would have made our mandate of ensuring price stability much more difficult,0
+not least they would by implication severely damage central bank credibility which in turn would cause painful costs in terms of higher interest rates,0
+1 on the other hand some underlying variables have diverged in particular cost and price competitiveness leading to an accumulation of payments imbalances within the euro area,0
+looking forward failure by the authorities to proceed with tax administration reform and to accelerate the fight against tax evasion will unavoidably widen the fiscal gap  and imply the need for higher savings on the expenditure side,0
+subsequent ad hoc requests then had to be made which were expensive  for the banks and for the supervisors,0
+otherwise our analysis will fall short our surveillance will remain weak and the policy mistakes may become more frequent and more costly,0
+4  another way in which different segments of financial markets will be affected in an asymmetric manner by the regulation is the maturity profile which is key for the denominator of the liquidity coverage ratio,0
+second the current crisis is bound to raise again the issue of whether a single market like the one we have among 27 countries in the eu can function smoothly when the exchange rate of some of the members is allowed  or even encouraged  to depreciate sharply possibly distorting competition,0
+however as has already been noted by the european commission the pace of structural reforms in the member states lost momentum in 2001 and remained sluggish last year,0
+not just in europe but around the world the crisis has progressively acquired a fiscal dimension that may be with us for a number of years to come,0
+indeed when other external factors such as import prices and oil prices are included in the equation for the euro area the global factor becomes insignificant indicating a possible correlation of the global gap measure with other external factors 11,0
+slide 2 therefore i will abstain from a chronological description of developments and will focus on three key factors that shaped euro area sovereign bond spreads at different stages first the risk transfer from the financial system to the government sector second the importance of market liquidity premia and third the emergence of more countryspecific sovereign credit risks,0
+one of the main effects that the mismeasurement of price indices may have on fiscal policy is that it may distort the fulfillment of a planned public budget,0
+at the same time a number of further structural features in product markets hinder the growth performance of the euro area,0
+it seems to me that these estimates these forecasts on the effects of monetary policy at the ecb are a little bit selfreferential,0
+the euro area risk outlook is again tilted to the downside,0
+but they are facing headwinds that europe cannot ignore,0
+the only additional complexity in the case of the euro area has been that in the early stages there was a higher degree of uncertainty as to the reaction of the integrated euro area economy to monetary policy impulses because no historical data were available,0
+however forward guidance could not to counter the effects of the reduction in the size of the ecb balance sheet that occurred over the past couple of years,0
+the exit of a member country would inevitably lead economic actors to wonder who would be next with all the potential destabilising effects that such speculation could entail,0
+the additional negative impact on banks balance sheets of rapidly declining sovereign bond prices made the situation even worse,0
+at the same time the governing councils decisions in september showed that it was alert to the potential side effects of monetary policy,0
+the ensuing dysfunctional policy debate and the discordant national responses were also harmful,0
+this is particularly the case when as jk galbraith observed politics consists in choosing between the disastrous and the unpalatable,0
+in fact the money demand function became clearly unstable since 2001 and did not justify the use of a concept like the reference value referring to the mediumterm of up to two years which is the operational horizon for monetary policy decisions,0
+26 the retail segment is also growing with retail investors often attracted by misleading advertisements that fail to clearly set out the risk involved in these products,0
+but the recent shift is also likely to reflect developments of a more structural nature  that is the slowdown in global value chain formation may well persist,0
+meanwhile domestic cost pressures in particular wage growth continue to be subdued also weighing on underlying inflation,0
+conversely debt securities represent 108 of gdp in the euro area compared with 162 of gdp in the united states,0
+interestingly both measures  forward guidance and asset purchases  have been reinforced by the fact that the effective lower bound has proven to be slightly negative,0
+if these service providers are at the same time the owners of the fragmented settlement systems they naturally have little interest in pursuing a consolidation policy which would eventually jeopardise their own business,0
+the risks that have been with us for some time now  a possible disorderly increase in risk premia debt sustainability concerns low bank profitability and imbalances in the nonbank financial sector  are still present,0
+insufficient macroprudential powers over nonbank financial sector  the second reason why the euro areas macroprudential framework remains incomplete relates to nonbanks,0
+following the bankruptcy of lehman brothers in september 2008 the financial market tensions developed into a loss of confidence across the whole economy and eventually a deep recession,0
+5  i rather tend to believe that occasionally we observe behavioural patterns in financial markets which can even be perfectly compatible with rationality from an individual investors perspective but nevertheless lead to possibly large and increasing deviations of asset prices from their fundamental values until the fragile edifice crumbles,0
+for example in the late 1970s the then fed chairman reported to the fomc that inflation is going to be left to the federal reserve and thats going to be bad news,0
+in aggregate the exposures correspond to an additional funding requirement for these banks which represent 52 of their total outstanding loans or 104 of their deposit base,0
+restricting the membership of regulatory committees to finance ministries could have the consequence that  the issuance of regulation will become too dependent on technical advice and ii the supervisory committees socalled level 3 will be distracted from their key functions information exchange supervisory convergence best practices etc,0
+i suppose that the same objection can be made if one attempts to explain the impact of uncertainty on precautionary savings,0
+had we waited for five of six weeks to give detailed explanations we would have been facing information and communication issues that would have been very difficult to solve,0
+15 for example taking the financial reporting of a large alternative fund and calculating leverage using a gross measure that includes the above underlying exposures it can be found that leverage goes up to a level of 700 of nav,0
+but in hindsight it seems reasonable to conclude that the inflation process was vulnerable to a shift in the environment  which is what transpired from around mid2012 onwards,0
+if economic policies ignore such developments and continue to aim for unchanged income and consumption dynamics they will create internal and external imbalances in the economy which will build up over time,0
+the difficulty of managing this special type of crisis coupled with what were in hindsight some errors in policy sequencing then noticeably exacerbated the fall in potential growth,0
+it seems that the current predicament originated mainly in institutions that had moved away from traditional retail banking from institutions that increasingly relied on noninterest income and nondepositfunding,0
+this i think is an unfortunate extra difficulty to have to contend with at a time when weve got the capital markets union work going on the efsi going on and all of these policies working together may lead into a change of mind in public perceptions when it comes to what the european institutions are about,0
+turning to the third issue that i mentioned at the outset we should recognise that the complexity of conducting monetary analysis in real time runs the risk of making that analysis difficult for the public to understand and interpret,0
+this minsky cycle in turn masked the underlying lack of productivity convergence in the precrisis period,0
+12 while there is a widespread presumption that through the latter channel globalisation forces have exerted cyclical downward pressures on inflation it is clear that potentially favourable tailwinds are increasing turning into contrarian headwinds posing potentially serious challenges to the maintenance of price stability,0
+understanding low inflation the ecbs monetary policy strategy of 2003 was challenged by severe economic and financial crises as well as deep structural changes in the economy in particular during the most recent decade,0
+since the process is gradual there are often depending on the prevailing economic situation and the initial fiscal position no visible strong indications of the ultimate adverse effects of persistently high budget deficits,0
+as regards structural policies the policy framework is so far less well developed,0
+when you get this data you always have the dilemma  and i do not deny that it is a dilemma also for the policy decisionmakers themselves  either to change interest rates at the time when the move was not expected or first rereading the information and then acting after the public was prepared,0
+the resulting currency mismatches particularly of households is in my view an important concern from a financial stability perspective,0
+at the same time the potential costs in terms of financial stability or income and wealth inequality may increase,0
+20 these knowledge gaps in turn led the economics profession to underestimate the potential cost that systemic financial crises may impose on broader macroeconomic prospects,0
+another relevant aspect is that both ratios are static in nature and not sufficiently granular to facilitate liquidity stress testing or to constitute an overall measure of an institutions liquidity position,0
+for a large group of countries inflation is currently an important worry but the fiscal situation also remains a concern in a number of countries,0
+while the shortterm economic impact of the crisis is substantial and requires ample monetary policy support the longerterm outlook is much less certain,0
+these warnings are not nice to hear either and often irritating for the addressees who feel like being lectured on their own behaviour,0
+on the other hand you have those who believe that insufficient growth is due to the bureaucracy of europes institutions which leads to excessive regulation,0
+the second risk factor is that the persistence of a debt overhang in parts of the euro area continues to act as a major drag on firm and household spending,0
+in particular according to the most recent data the share of the current new member states in the eu15s total extra fdi outflows amounts to more than 12,0
+11 finally but related to the previous arguments direct lending to the real economy may imply an increase in the financial risks taken by the central bank potential exposing the latter to risk to its financial independence and ultimately to its institutional independence,0
+for quite some time now european bank valuations have been depressed by very low profitability caused by excess capacity limited revenue diversification and low cost efficiency,0
+i will come back to this point later but let me note for now that a too gradual adjustment of our guidance could ultimately be quite costly,0
+on the other hand sharing monetary policy and in particular an exchange rate deprives national economies of some adjustment tools in the face of local shocks,0
+second it is necessary to carefully assess labour market regulations that may overly protect the employed at the cost of the unemployed,0
+beyond these considerations however there are political and economic considerations that have not been addressed here,0
+in any case the additional fiscal costs that governments have shouldered will be carried forward in terms of higher debt for years to come,0
+throughout the second half of the year macroeconomic outlook deteriorated and underlying inflation dynamics weakened which began to spillover into longterm inflation expectations,0
+3the value of collateral reported in supervisory statistics is capped at the value of the exposure therefore the actual collateral pledged against npls is likely to be significantly higher,0
+a concern with regard to the outlook for price stability in the coming years has been the possible emergence of secondround effects via wages on the current level of consumer price inflation,0
+taking into account the deep and prolonged recession the underlying fiscal adjustment has been even larger,0
+ten years before when spreads still included substantial exchange rate risk premia they exceeded 600 basis points with budget balances ranging from a 3 of gdp surplus to a 10 deficit and debt ratios varying from 7 to 133 of gdp ecb 2006,0
+in such a situation the financial system will not avert but rather amplify the retrenchment in the real economy,0
+it should also be underlined that aaa abss issued in europe had average total losses over the period 20002013 of 02 of the notional against 36 for the us securitisations,0
+although data limitations make it hard to derive empirical estimates of each element of this decomposition going far back in the past what transpires from this analysis is that all components had had a decadeslong history of consistent decline,0
+an even more fundamental problem is that parameters may vary over time as a result of structural change in the economy,0
+first some commentators have stated that since the ecbs balance sheet is expanding and is allegedly taking on large risks the ecb may be turning into a bad bank,0
+if however risk assessment and management is inadequate asset valuation is difficult and highly uncertain and incentives are distorted the risks to financial stability could increase,0
+challenges became more intricate still when the third layer of the iceberg  the sovereign debt crisis  surfaced towards the end of 2009,0
+this positive verdict on inflation targeting has been more recently called into question,0
+in other words some of the strong growth we had experienced in that period may have been unsustainable in the first place,0
+a third occasion when communication mattered was during last summer when we were facing pronounced volatility in the money market forward curve which threatened to undermine our accommodative monetary policy stance,0
+the resulting credit crunch would procyclically aggravate the downturn as experienced in previous crisis episodes,0
+the european stability mechanism cannot fully fill the gap as it typically leads to procyclical fiscal tightening,0
+4 this literature points out that decisionmakers who are subject to political election cycles tend to act in a more shortsighted manner when exercising their mandate,0
+however this increase was largely anticipated by the ecb and is due to a number of factors including socalled base effects bad weather impacting prices of unprocessed food and higher indirect taxes,0
+the flow of bank loans to the private sector has decelerated steadily in recent months and in december it turned negative for the first time since the outbreak of the financial turbulence,0
+hence rather than indicating stability high solvency could be a signal of weaknesses developing in a bank in a competitive environment that may potentially entail loss of market share and profit erosion in the future,0
+this was even more the case before the great financial crisis after which us households deleveraged to a great extent,0
+first from the policy making perspective such a vague definition offers no practical guidance for the conduct of monetary policy beyond identifying the primary objective,0
+looking forward the potential further losses of european banks until the end of 2010 are estimated at usd 750 billion,0
+second as the bank for international settlements warned in its 2008 annual report the largescale intermediation of ailing capital markets by the central bank may create price distortions in the longer term,0
+in addition to a rapidly deteriorating general government deficit which is expected to be above 6 of euro area gdp in 2010 the euro area debt ratio will increase by about 15 percentage points to above 80 of gdp by 2010,0
+the first risk is that cheap funding allows banks to backload the deleveraging of their balance sheets and encourage socalled evergreening practices which in turn may prolong macroeconomic stagnation,0
+what seems to be true is that our job as central bankers has become even more demanding because monetary policy needs to be conducted at a time when the relative importance of various transmission channels may be changing in the wake of globalisation,0
+the crisis has also exposed our lack of some fundamental analytical tools and policy instruments the complexity and sequencing of the crisis as well as its morphing over time have also exposed our weak understanding of micro and macrofundamentals,0
+8  the main point though is that those predictions are not supported by the empirical evidence,0
+but it is clear that those impairments have been more severe in the euro area,0
+the economic rationale of the monetary financing prohibition is clear as history has shown central banks cannot ensure price stability if they have to permanently make up for weak performance in other policy domains,0
+in fact the downside scenario in our june projections reflects this risk and implies a contraction of activity in 2023 following weaker but positive growth in 2022,0
+for big countries on the other hand lack of fiscal discipline may have an effect on the common interest and exchange rates creating a negative externality for the other participants,0
+fiscal consolidation and growth the second current criticism of the euro area is that its focus on fiscal consolidation is destroying growth prospects,0
+otherwise the single monetary policy of the euro area might not be suitable thereby bearing the risk of boombust cycles and high inflation volatility in the country concerned,0
+7  let me elaborate on these issues by first looking at periods when financial markets are declining sharply,0
+a lack of profitability is one of these issues,0
+on the one hand changes in interest rates reflecting markets negative reassessment of prospects for fiscal sustainability usually have a negative impact on governments fiscal positions,0
+from a fiscal policy point of view it should be noted that although the exit from monetary measures will be uniform across the euro area it is likely to have asymmetric fiscal impacts given the current substantial heterogeneity of fiscal positions,0
+fourth all the potential procyclical effects of the present functioning of the financial system including the current regulatory framework  the implications of the present prudential rules and accounting standards  need to be mitigated,0
+the ensuing persistent losses of competitiveness translated into an accumulation of external imbalances,0
+in this regard it should be emphasised that many of the costs associated with inflation such as relative price distortion also apply in situations of a sustained decline in price levels,0
+this becomes even more critical when monetary policy needs to be accommodative as i expect will be the case for the foreseeable future in the euro area,0
+however if anything the static approach is more demanding for banks because it ignores the relative improvements they could engineer under stress by adjusting their balance sheets,0
+first uncertainty around these estimates is considerable with forecasts for next years inflation ranging from 04 to 25,0
+finally governments must prepare now for the fiscal burden arising from demographic ageing that in the long run will put a substantial burden on public finances,0
+though they have macroeconomic consequences these externalities typically originate from misaligned incentives at a microeconomic level  for instance pervasive moral hazard that induces agents into excessive risktaking in their contractual relations,0
+in addition the liquidity coverage ratio also leaves out some abs types that could have been included in my view however taking a step back it seems that an appropriate capital treatment is more important to achieve right now because with toohigh capital requirements european abss are unlikely to be created in the first place much less traded,0
+third and closely linked to the previous two points the lack of private financing arrangements also poses a significant barrier to effective resolution,0
+in the medium term such inflationinduced decreases in the real aftertax salary and in the real aftertax return on savings will lead to a diminished incentive to supply labour and capital which will ultimately curtail the economys longrun growth perspectives,0
+under these circumstances the peer pressure mechanism on which the eu fiscal framework is based may be weakened thus making more difficult a return to sound fiscal policies,0
+in fact a monetary policy that reacts too late to emerging inflationary pressures runs the risk of being forced to take much stronger measures at a later stage,0
+while the level of bank equity prices is not per se a matter for policymakers insofar as it raises financing costs for banks it could ultimately curtail lending to the real economy and hold back the recovery,0
+12 but one cannot rule out that negative nominal interest rates raise broader cognitive issues as they challenge the rules of thumb used by economic agents in their everyday decisions,0
+there may be cases where even if a tax reform were to be desirable from a longterm perspective and affordable as far as the governments fiscal position is concerned if not timed properly it could still have a detrimental procyclical effect,0
+another concern is the implication of low interest rates for savers,0
+the erm crisis and the exit of the italian lira and the british pound in the autumn of 1992 as well as the widening of the fluctuation bands of the erm led to large changes in competitiveness with an overall contractional impact even on the stronger economies such as germany,0
+looking ahead lack of genuine financial integration and low resilience will always expose us to systemic risks,0
+if left unaddressed this either results in prolonged economic divergence  which is inconsistent with the objectives of the union or in permanent fiscal transfers  which is politically unacceptable,0
+turning to price developments annual hicp inflation declined somewhat towards the end of 2005 standing at 22 in december down from 23 in november and 25 in october,0
+more fundamentally however european banks suffer from structural challenges partly attributable to their high costs,0
+in addition debt restructuring does not in itself address the underlying economic fiscal and structural imbalances,0
+the latest available forecasts indicate that government deficits in these countries may be in the vicinity of 2 of gdp or even exceed that level this year and in 2002,0
+one important issue of concern however is the fact that within the euro area there is also a relatively high degree of persistence regarding output growth differentials,0
+and our latest staff projections foresee a material downgrade of the macroeconomic outlook,0
+in fact downside risks to the outlook stem from the threat of increased protectionism rising oil prices and its impact on inflation and global growth as well as very elevated levels of global debt,0
+the truth is that should weak longterm growth expectations indeed become selffulfilling then we would also see signs of hysteresis in the natural rate of interest which economists frequently call rstar,0
+in turn the fiscal support to the economy substantially worsened public finances,0
+more recently we have been confronted with a situation of successive downward revisions of our expected inflation path,0
+a second paradox is that if central banks followed what these critics suggest and aimed at the wrong target for sure market participants will start doubting their infallibility,0
+i dont need to stress how relevant these issues became especially in the aftermath of the financial crisis when massive intervention in the banking industry had imposed very large costs on europes taxpayers and had significant consequences for the sovereigns,0
+i think it is fair to say that the fiscal exit  or i think it is better to say fiscal adjustment that will be necessary in the coming years is likely to prove even more challenging for governments than the phasing out of nonstandard measures for the eurosystem,0
+lets consider first the conflicts of interest within the central bank which would emerge in particular in model 2 between the objective of price stability and the objective of macrofinancial stability,0
+clearly we do have to look for results benefits in the shortterm and if you have changes of government elections in individual member states clearly that could have the effect of radicalising certain positions and mediumterm forecasts in fiscal policy for example can be affected by the fact that there is that much less political will in the mediumterm,0
+and i fear rebalancing policies will inevitably have allocative implications 6,0
+we should not today introduce procyclical changes in the regulatory framework at a time when we are already observing a marketdriven deleveraging of the first magnitude,0
+this can be explained by investors expecting proportionally larger valuation losses when remaining invested in leveraged funds,0
+the outlook for wages and inflation the weakening growth picture has naturally affected the inflation outlook as well,0
+however i share some of alans considerations on the limits and drawbacks of macroeconomic projections based on a constant interest rate assumption,0
+3 the tourism sector will also see dwindling numbers of visitors from russia and ukraine which represented 27 and 5 of total arrivals in 2021 respectively,0
+this would be problematic anywhere but it is more so in a monetary union as the common monetary policy can only aim at price stability for the euro area as a whole,0
+the problem is a serious one because the macroeconomic outlook might be subject to sizeable and frequent changes in particular following the release of new data,0
+overall the ongoing disinflation process in the euro area is expected to imply sharp fluctuations in hicp inflation rates during 2009 as also foreseen by the ecb staff projections,0
+in particular there are two different arguments that may arise in the years ahead one strengthens the oca argument in the euro area while the second renders the verdict more complex,0
+this is particularly accurate in this period where the euro area economy is currently in a juncture which is dominated by exogenous price shocks and uncertainty about the outlook of the real economy,0
+the us fiscal deficit stood at around 40 of gdp in 2004 while the private savingsinvestment balance recorded a deficit of around 1 of gdp,0
+7  on top of the gravitational pull of these secular forces there are cyclical factors weighing on real interest rates that are more directly linked with the global financial crisis,0
+on the other hand there is a danger perceived by some that a clf could materially change the effectiveness of the lcr as the definition of hqla would de facto be substantially widened which would offset the objective that banks should selfinsure against liquidity risk,0
+incoming information continued to disappoint in early 2019 suggesting that the moderation would extend into the current year,0
+in august 2007 the concerns that many people had been harbouring for a while were abruptly translated into financial turmoil,0
+another point to note in this context is that at times when wage increases are the driving force behind inflation the macroeconomic income distribution tends to change to the benefit of employees and to the detriment of profits,0
+highly leveraged investors were faced with a situation of falling asset prices,0
+on the other side the regulation might lead to a situation in which some euro area banks presumably the most fragile would rely more on the eurosystem than otherwise,0
+and they would be more exposed to monetary policy spillovers from abroad  not least from the ecb itself  which could constrain their domestic policy autonomy,0
+as a result suboptimal decisions are taken as the experience since midoctober 2010 has shown,0
+however a welfare comparison between the impact of an extended interest rate rule  including financial variables  and countercyclical loantovalue ratios leads to ambiguous results as lenders and borrowers are affected in opposite ways,0
+conclusion population ageing will continue to have pervasive implications for fiscal monetary and structural policies in particular until the babyboomer generation moves to the dissaving part of its life cycle at the end of the coming decade,0
+the outlook for us monetary policy moves and vulnerabilities in emerging markets add to the overall uncertainty as does the limited progress on the brexit discussion,0
+we are very much concerned about the possibility that small national schemes such as dutch finnish and irish schemes will be replaced by the international schemes,0
+the second contingency was an impairment in the bank lending channel that would translate itself into an impairment of our transmission mechanism of the monetary policy,0
+i am particularly concerned about the dramatic deterioration in public finances which will require very ambitious fiscal consolidation efforts in the years to come,0
+the policy accountability framework would be distorted as a result,0
+since i am not the elusive onearmed economist this overall positive assessment on the one hand is complemented by some other considerations of caution and concern on the other,0
+budgetary responses to bring public finances into line with sustainability requirements may therefore be delayed beyond the point which may be seen as prudent from a longterm point of view,0
+considering only investment since 1997 rough estimates indicate that eu investors have incurred tremendous losses ranging from eur 200 billion to eur 540 billion until mid2002,0
+in addition the second recessionary period led not only to extensive but also to very persistent job losses in some euro area economies,0
+the current situation of subdued bank lending and outlook for growth in the euro area is a case in point,0
+a third reason which i will not discuss here relates to the political economy of bank resolution,0
+for example the output gap which plays a central role in neokeynesian recommendations for monetary policy has proven difficult to estimate precisely for the euro area  the same is true elsewhere,0
+the ecbs monetary policy during the crisis during the crisis the european central bank was confronted with considerable challenges,0
+first the downside risks to our baseline scenario for the euro area economy have increased in recent months due to the deterioration of the external environment,0
+at the same time however the design of omts makes it clear to everyone that the programme is effectively limited for one by the restriction to the shorter part of the yield curve and the resulting limited pool of bonds which may actually be purchased,0
+macroprudential margins and haircuts as tools to control leverage and avoid liquidity spirals  margins and haircuts are a determinant of the buildup of leverage via derivatives and sfts and are strongly interlinked with the procyclicality of that leverage,0
+at that time many policymakers myself included had questions about how this would work in the euro area,0
+it has to be noted however that there are no harmonised procedures to follow in the case of a banking crisis,0
+in principle unsustainable fiscal policies represent an upside risk to price stability as the possibility cannot be ruled out that debtburdened governments may resort to monetary financing,0
+the abovementioned general documentation is one example of this since credit institutions preparations for participation in escb monetary policy operations as from 1 january 1999 were to a large extent dependent on the decisions to be taken by the governing council,0
+let me turn to the financing conditions in the euro area which have deteriorated further since september 2008,0
+as a result central banks have to resort more often to balance sheet policies that entail the risk of contributing to the buildup of financial imbalances when the macroprudential policy framework is incomplete,0
+macroeconomic policy was severely constrained in managing the economy in particular because of the fixed exchange rate policy,0
+the global financial crisis and later the sovereign debt crisis led to a destabilising dispersion in interest rates and ultimately in real and nominal economic indicators,0
+in their view  as far as i can understand  the programme is bound to fail for economic political and european governance reasons,0
+the problem with this view is that it totally omits the broader impact on the markets,0
+if a central bank is not independent policymakers from other quarters have strong incentives to pass on to the bank problems and responsibilities for which they in fact are to be held accountable,0
+the latter is in itself very difficult to determine given the uncertainties about some of the longerterm developments in the economy,0
+the financial sector is different from other sectors precisely owing to the systemic and contagion effects that a crisis would have on all the other sectors,0
+as regards intraeuro area imbalances there has been a major external adjustment in euro area countries with previously high current account deficits,0
+from a financial stability perspective the impact of shorttermism and volatility of accounting information can be very detrimental as both may aggravate procyclicality,0
+indeed some of the policy responses have been suboptimal from a global vantage point,0
+such valuation effects can be particularly powerful when exchange rate fluctuations change the value of collateral denominated in foreign currency and thereby affect borrowing and leverage,0
+over a medium to longterm horizon inflation forecasts based on statistical analysis become very inaccurate,0
+a reconsideration of the effectiveness of both macro policies has become even more necessary in view of the two major problems that central banks are now confronted with first the lingering low inflation associated with flatter phillips curves that impairs the policy transmission and second the need for policy instruments to deal with the next recession even if a mild one,0
+at the same time the plight of the banks in some countries was exacerbated by precarious budgetary situations,0
+downward spirals can therefore ensue which may seriously imperil the financial stability of the entire system,0
+this has been the case in part due to the wide distribution of risks through the financial sector which made the assessment of the value of the underlying asset difficult for the investor,0
+in the view of the governing council uncertainty surrounding growth prospects is particularly high at the current juncture with downside risks mainly relating to renewed increases in energy and food prices and a potentially more negative impact of financial market developments than currently foreseen,0
+fiscal policy has therefore been largely procyclical and all sectors have had to deleverage simultaneously in a context of weak nominal growth,0
+it was also absurd because greece had just received a financial support programme that explicitly excluded restructuring,0
+16  introducing systemic products based on stablecoins before the necessary elements of a comprehensive policy have been implemented especially as regards the oversight and regulatory response could endanger rather than benefit the european financial system,0
+this led to a large current account surplus chart 3 right panel while the protracted weakness in internal demand weighed down on inflation chart 4,0
+however assuming that capital flow restrictions and underdeveloped financial markets elsewhere in the world would have persisted the country would likely have soon reached a limit in its ability to engage in maturity transformation in the capital account,0
+in dealing with this latter tradeoff central bankers should be riskaverse with regard to their primary objective as the loss of inflation fighting credibility may weigh heavily,0
+for some it is mostly a story of unsound fiscal policies and excessive sovereign debt for others it is principally a story of competitiveness losses engineered by uncontrolled unit labour costs and for others still it is essentially a traditional balance of payments crisis in a fully fixed exchange rate regime,0
+in this respect it has been increasingly recognised that a central bank that focuses on inflation forecasts at around twoyear horizons would not be able to appropriately take into account the formation of financial imbalances as they generally exert effects on price developments at longer horizons,0
+fiscal policy  after briefly intervening to support the economy  procyclically turned towards fiscal consolidation mainly through uncoordinated interventions that were inconsistent with the fiscal stance that would have been appropriate at european level,0
+it is important to keep in mind this long term perspective looking beyond the ongoing economic and financial challenges in the euro area,0
+on the other hand the public are faced with warnings of the risks which could arise from further european integration contrasting with highflying expectations for europes future,0
+its average fiscal deficit in 2013 is projected to be 31 of gdp compared with a 58 deficit in the us or a 95 deficit in japan,0
+while the first two are important to solve the problem facing a country affected by an adverse shock the third fiscal transfers only hides the problem,0
+my impression is that many women see these matters as personal problems,0
+at the same time funding vulnerabilities and impaired capital positions of domestic banks translate into a higher need for government support putting further pressure on sovereign debt,0
+second some analysts have tried to show that the eurosystem had taken on too much risk at the detriment of the ecb major shareholder by looking at the net balances of individual national central banks in the eurosystem  the socalled target2 balances,0
+this inflation outlook is consistent with the september 2009 ecb staff projections which have been revised slightly upwards compared with the june projections mainly owing to higher energy prices,0
+in addition as elaborated above such a dual mandate raises questions concerning appropriate accountability mechanisms especially in view of the need for more stringent accountability obligations in the area of macroprudential policy,0
+the past four years have been particularly challenging for the ecbs monetary pillar because the very rapid expansion of m3 that we observed cannot be easily explained in terms of the traditional determinants of monetary developments,0
+second the negative productivity developments i have just discussed have not only been a drag on economic activity they have also put significant temporary upward pressure on inflation especially after 2001,0
+but in line with another strand of thought in the literature such concerns about high capital ratios are not necessarily justified from a social point of view,0
+important sources of instability in inflation expectations could still arise if the central bank  even one endowed with a clear mandate to preserve price stability  is not sufficiently clear as regards its own monetary policy concept and strategy,0
+cyclical factors and the doom loop between euro area banks and sovereigns have certainly aggravated market segmentation,0
+however it is important to put these figures into perspective the annual rates mask the fact that on a quarterly basis real growth is projected to reach its trough already in mid 2008 before gradually recovering thereafter,0
+i have already mentioned developments in prices costs and wages current account deficits and indicators of private and public sector indebtedness as well as countries external debt position,0
+this mechanism is likely to be more pronounced during an economic slowdown as the cash flow of firms and the income of households are deteriorating,0
+in the case of monetary policy any such precise estimation of future decisions is not only impossible it is also undesirable for the following reasons,0
+as a result the slower growth momentum has extended into the current year,0
+at the same time if financial innovations simply present new types of risks we will not be so accommodating,0
+a recent ecb study on eu banking structures ecb 2010 highlighted that the inappropriate assessment of the risk characteristics and thus the unsustainability of the observed roe ratios led to huge losses in the recent crisis,0
+now with the introduction of the total loss absorbing capital rules they may be forced to reconsider those business models as they will need to issue more unsecured longterm debt,0
+and one of the reasons for this is that europeans are overrepresented in these fora which reduces their legitimacy,0
+these developments were particularly worrying because they were accompanied by a decline in longerterm inflation expectations,0
+risks to fiscal sustainability and growing market distrust in some euro area countries started to spill over into their respective banking sectors,0
+9  for the real economy the evergreening of loans implied a weakening of growth prospects,0
+in these cases recognising interim fair value changes simply heightens the volatility of the financial accounts without providing actual information content,0
+as such liabilities originated in the private sector it was not properly understood that they would eventually migrate to government balance sheets when they assumed systemic importance,0
+in the chart this negative shock to the inflation outlook is represented by the downward shift in the expected path of inflation from a to b,0
+in addition to undermining soundness of budgetary positions discretionary fiscal policies have too often proved to be procyclical rather than countercyclical thereby exacerbating macroeconomic fluctuations see issing 2005,0
+i will focus in particular on the latest round of nonstandard measures  the threeyear refinancing operations which were conducted in december and february,0
+6  these secondround domestic risks to the economic outlook could in turn be exacerbated by the third factor which is heightened uncertainty and its effect on investment and consumption,0
+nevertheless we observe that a scenario configuration involving a rise in interest rates and asset price declines would in general tend to exert a negative influence on banks solvency positions,0
+finally financial markets and intermediaries  their regulation their imperfections and their supervision  played only a minor role or were even entirely neglected in macroeconomic models,0
+1 the third problem is that a sovereign default can have systemic consequences in a monetary union as a result of the financial interconnections,0
+similarly recourse to the repo market which we know is inherently fragile 7 will be constrained by the envisaged fsb rules on shadow banking,0
+1  yet it was clear that the loss of growth momentum could become more broadbased and persistent if two risks were to materialise first if external demand were to remain weak and second if this were to spill over into domestic demand,0
+losing that access would therefore have an impact  not only on the banking sector itself but also on the uks economy,0
+well let us for a moment assume that there will be a hard brexit in the sense that the uk would turn into a third country from the perspective of the eu,0
+budgetary plans for 2008 are difficult to reconcile with this consolidation benchmark,0
+the concern is that this could lead to less stable and more costly funding lower bank profitability and ultimately lower lending constraining the financing of the real economy,0
+the second aspect is that for an energyimporting economy such as the euro area oil supply shocks are negative termsoftrade shocks raising inflation and transferring wealth abroad,0
+at the same time market valuations of banks have declined but this mainly reflected broader concerns about a weaker economic outlook in light of rising energy and commodity prices and the associated lower prospects for bank profitability,0
+the second one regards the difficulty of holding policy makers effectively accountable at the domestic level if their policy actions are based on considerations going beyond the mandate that they have been assigned,0
+it is easy to conceive of economic conditions in which these prescriptions induce destabilising action on the side of monetary policy,0
+while it is clear that fiscal consolidation has affected economic activity in the euro area in the shortterm it does not follow from this that adjustment and growth are incompatible,0
+the dispersion is likely to be even lower for measures based on euro area inflation forecasts,0
+the greek government delayed for many months the measures needed to regain control over the budget because of fears that it would impair growth prospects,0
+there is also the risk that monetary policy is dominated by financial stability concerns implying that price stability would be subjugated by financial stability,0
+this in turn had a strong impact on an already severely weakened financial sector,0
+on the one hand the underestimation of deflation risks might ultimately lead to deflation,0
+on the other hand we learned that these policy areas are interconnected  fiscal imbalances can undermine the financial sector financial sector imbalances can weigh on the credibility of the sovereign both can spillover into the real sector and vice versa,0
+1  the reasoning behind this is the following with increasing financial integration pursuing national financial policies will generally not lead to financial stability because national policies seek to benefit national welfare while not taking into account externalities of national supervisory practices in other countries,0
+by the end of june uncertainty and concerns about the economic policies of the government were mounting culminating in the announcement of the referendum on 5 july 2016,0
+neglecting such wider systemic issues has been one of the glaring inefficiencies of prudential regulation,0
+if we consider for instance the real rate of return on bank deposits of private households in germany since 1991 these generally remained at less than 1 and sometimes they were even negative,0
+turning now to actual import price developments in the euro area the data indicate that there were recent episodes when import prices stagnated 199599 or even declined 20012003 suggesting that import prices may have contributed to low domestic inflation in the euro area  at least for some time chart 6,0
+and by the way that is also an issue for european banks that do business in the uk,0
+for example the phasing out of regulation q in the united states in the early 1980s increased the cost of thrift institutions floatingrate liabilities relative to their fixedrate assets and adversely affected profitability and capitalisation in the industry,0
+however all insurance and this in particular would come at a price  in the form of risk premia which could affect economic growth negatively,0
+the first relates to international portfolio rebalancing considerations and the second to investors views of the risks surrounding the medium to longterm inflation outlook,0
+if one looks at any of the national media and the discourse of the domestic debates one can see how sorely this is missing,0
+the outlook is however clouded by a weaker macroeconomic backdrop which is not yet reflected in loan loss provisions and overall lending volumes,0
+in some cases this indiscipline precipitated serious fiscal challenges when recession began in late 2008,0
+absent of this would have the dire consequences that the savinginvest imbalance would find the solution via a fall in nominal income levels as a means to compress savings,0
+lack of longterm economic competitiveness in turn can sap confidence and undermine the unions internal cohesion,0
+raising capital in such circumstances may not be accepted by shareholders as it may send a negative signal to the markets and lead to a drop in share prices,0
+on the other hand the banking sector suffers losses due to the opportunity cost of holding sterilisation assets which have lower return than lending,0
+the continued weakness in bank profitability reflects a number of cyclical and structural factors,0
+but despite its technical character i intend to explain that such a disconnect evidences ongoing structural change in the euro areas bond market and could bear consequences for the transmission of our monetary policy,0
+if however the economic problems are persistent andor structural in nature then monetary policy is likely to be less effective,0
+at the same time countries might face problems in actually using their reserves in times of crisis given that markets might not focus on the absolute level but rather on the relative changes,0
+following a sharp drop in real gdp of 36 in the first quarter of the year a much larger contraction is expected in the second quarter with eurosystem staff projections seeing a fall of 13,0
+nevertheless i found recent critique of not having adopted either a monetary or an inflation targeting strategy not very convincing since it was not accompanied by any evidence of why the reason for the cautious twopillar approach of the ecb were not justified,0
+6  reflecting the significant and unavoidable revisions in the growth and inflation outlook at horizons beyond a few months it is very difficult to forecast interest rates accurately,0
+the results of our most recent survey of monetary analysts suggests that more than 40 of respondents see upside risks to inflation this year while almost a third sees upside risks for 2022 left chart slide 10,0
+my conclusion is that current conditions are of the second type inflation is below the ecbs numerical definition of price stability and cyclical developments remain sluggish,0
+this is an issue that the eurosystem will also have to further reflect on in the future,0
+second phase monetary policy until the financial crisis 20032007 the period spanning from the revision of the monetary strategy to the beginning of the crisis in 2007 coincided with the buildup of macroeconomic imbalances in several member countries,0
+at the same time there is a clear friction in the passthrough of negative rates to depositors especially to retail customers see chart 7,0
+there is however a significant question of liquidity risk as investment funds units are redeemable in the short term and their assets have much longer maturity,0
+it is interesting that public pension funds such as the florida state pension fund in the enron scandal as widely reported in the press also lost hundreds of millions of dollars due to an insufficiently diversified portfolio,0
+20 moreover in addition to observable factors an unobservable threat effect  whereby workers in industrialised economies perceive themselves to have a weaker position and thereby moderate wage claims given a fear of production relocation to lowercost economies may have contributed to wage moderation,0
+if this occurs it will confront europeans and americans with a new dilemma on the way towards global economic relations,0
+a third channel the balance sheet channel  is indirect lower government bond prices which correspond to higher bond yields imply valuation losses in the assets held by the financial and nonfinancial sectors,0
+financial stability the macroeconomic forces i have just discussed amplified by the economic fallout from the russiaukraine war also have implications for the financial stability outlook,0
+on the upward side increasing wage pressure and a relaxation of the fiscal stance could adversely affect the prospects for future price stability,0
+since 1999 the growing current account deficit in the us has been associated with a sharp decline in savings,0
+reading the paper i gained the impression perhaps wrongly that a problematic relationship is one in which monetary and fiscal policies are distinct as is the case in the euro area,0
+21 clearly policymakers who rely exclusively on such assessments of the cyclical position can be seriously misguided in their realtime conjunctural assessment,0
+this development was unwarranted given the underlying macroeconomic conditions and was not in line with our policy dispositions,0
+and these effects are likely to be worse if such a package is dominated by reforms that create more disinflationary pressures,0
+20 finally the period after the lehman default in september 2008 illustrates that markets can react with larger increases in risk premia on government bonds when the fiscal situation is not deemed credible in the long run,0
+what this means in an environment of elevated volatility and structural change is however controversial,0
+finally the third factor i want to mention is the excessive procyclicality of the financial system,0
+however at the same time it cannot be excluded that some fragmentation may indeed have taken place during the crisis reflecting different market liquidity conditions as i previously explained,0
+in greece the lack of reliable economic data made the pricing of sovereign risk even more demanding,0
+compared with the september 2011 ecb staff macroeconomic projections there is a narrowing of the range of the real gdp growth projection for 2011 and a significant downward revision of the range for 2012,0
+first it has important implications for the sacrifice ratio if inflation rises as a result of shocks not related to domestic slack then the cost of bringing inflation down in terms of output loss would be higher,0
+i am going to begin my talk with an illustration of key elements of the european developments since the mid1990s which are disappointing especially when viewed against the benchmark of the strong us performance over the last ten years,0
+similarly cfms could be applied on capital outflows if the economy is stagnating fx exposures are high and reserve levels are inadequate,0
+they are one of the elements not the exclusive one and also for our decisions which we have to take every two weeks those forecasts as you know them and as they have been published become very quickly totally outdated,0
+from that point of view it is possible that crossborder mergers or acquisitions in the euro area banking sector develop too slowly at the current pace,0
+16  the current shortterm inflationary pressure may spill over to inflation expectations leading to more protracted inflationary pressures,0
+a key feature of the present crisis is the increase in the correlation between the cost of funding of euro area banks and that of their respective sovereigns particularly in some peripheral economies,0
+concerns that systemic sovereign issuers may lose market access fed fears that they may be forced to redeem their liabilities in a currency different from the euro and thus de facto leave the euro area,0
+nevertheless financial imbalances have grown larger and they seem likely to increase further primarily at the global but also at the euro area level,0
+wont this put the small scale retail trade in a very difficult situation because as of the 1st of january they will be confronted by large denomination notes but they wont be able to give change to customers,0
+socially uncertainty will weigh heavily on peoples shoulders in the years to come amid these structural changes,0
+a second important element of criticism has been that the eurosystems internal economic forecasts  and the inflation forecast in particular  are not published,0
+the reason is that in the context of freely mobile capital public authorities are likely to be faced with policy dilemmas and speculative attacks that might be even selffulfilling,0
+on the expenditure side adjustment has relied disproportionally on cuts in government investment thereby weakening the prospects for longterm growth,0
+over the last years the treaty rules governing the procedures for coordinating economic policies and correcting excessive deficits have exhibited some shortcomings,0
+slide 17 depicts the economys plunge after the lehman shock with the bellshaped distributions of market forecasts for the year 2009 gdp growth rates revised downward from one update to the next by a few annual percentage points,0
+a scenario like the one that occurred in the united states in the early 1980s does not seem likely to develop in europe or in the united states in the current circumstances,0
+at the same time it is hard to find a satisfactory way to integrate money into traditional macroeconomic analysis both at the theoretical level and at the practical level  eg,0
+slide 1 also tells a second story  that among the various investment opportunities available to investors virtually all net capital outflows have been concentrated in purchases of foreign longterm debt securities,0
+22  in addition when considering the consolidated balance sheet of the public sector which includes the central bank there is a risk that very long periods of asset purchases may penalise the average taxpayer in a future crisis,0
+there is then a risk that sovereignty becomes an ideological concept,0
+but just consider this was in the original design of the programme when we had countries like greece whose bonds we did not purchase,0
+we have also seen in the euro area however that fiscal policies can face their own dominance problem related to financial policies,0
+however as i have indicated in a speech made in berlin about one year ago the risk of getting behind the curve what i then called type i error might further increase if the tightening starts at an interest rate level that is substantially below the neutral level,0
+such changes are always difficult to implement as the benefits are not immediately clear to many citizens,0
+i dont address here a fourth objection namely that buying government bonds would be conducive to higher inflation,0
+slower growth prospects may dent bank profitability through a reduction in lending activity and a possible increase in credit impairments,0
+and frankly i think that call is going to be our toughest decision in the years ahead,0
+gross political mistakes such as the deauville doctrine on private sector involvement in debt restructuring or the public debate about a country possibly abandoning the euro have worsened the situation,0
+overall the deleveraging of european banks had farreaching global implications,0
+the potential negative aggregate effects of such systemic liquidity crises can jeopardise price stability over the medium term,0
+specifically the average core tier 1 capital ratio would decline by 04 percentage points in the funding stress scenario by 06 in the sovereign debt crisis scenario and by 11 in the global risk aversion scenario,0
+its always going to be the case isnt it mr duisenberg that smaller economies on the periphery of the euro zone wont necessarily have an interest rate which suits their economy,0
+9  it is sometimes argued that our monetary policy discourages governments from undertaking the necessary reforms,0
+the justification for this threshold is twofold first the regulatory imposition related to the liquidity coverage ratio lcr requires holdings of sovereign debt that represent an average close to 100 of tier 1 capital second the radical reduction of the unsecured interbank market in favour of the use of secured transactions repos that mostly use sovereign paper further increases the need for banks to keep a sizable portfolio of sovereign debt,0
+these include the possibility of a more broadbased turn in the global credit cycle a disorderly unwinding of global imbalances and the financial stability implications of persistently elevated energy prices,0
+on the one hand they should not react mechanistically to firstround effects from oil prices if central banks attempted to stabilise overall inflation immediately the rest of the economy could go through a spell of inefficiently low price increases or even deflation,0
+the overall fiscal stance is not discussed and there is no substantive effort to coordinate independent national fiscal policies,0
+it remains to be seen how they correspond to our rules and as a result how they may affect our pool of eligible collateral and ultimately our monetary policy stance,0
+if a central bank underestimates the persistence of inflation  as most of us have done over the past oneandahalf years  and if it is slow to adapt its policies as a result the costs may be substantial,0
+another important departure from rationality that is of key practical concern is how simple behavioural rules adopted by market participants in normal times can lead to entirely different outcomes or even to market meltdowns in crisis periods,0
+several are facing an unavoidable period of double deleveraging in both the public and private sectors,0
+in fact at present the situation of subdued economic growth and the stronger external value of the euro make the structural reforms even more necessary,0
+for instance recent research based on european alternative investment funds has shown that leveraged funds experience greater investor outflows after bad performance than unleveraged funds,0
+incidentally the identification of the disturbances stemming from cyclical structural or expectational disturbances is further complicated by the expost statistical revisions which may at times overturn the empirical platform on which central bankers have to make their decisions in real time,0
+however being more visible in the single currency area they may trigger further pressure leading to their progressive disappearance,0