Price stability ensures that the market mechanism works properly, which is the best way we know to create growth, jobs and prosperity for all. It preserves the purchasing power of our money and the value of our savings. And it has profound social implications. Stable prices support the weakest members of our societies – including pensioners and the unemployed – who depend on fixed incomes to live. In that sense, a stability-orientated monetary policy is a key component of the Social Market Economy. I do not say this based on theory: the history of this country has taught us that inflation undermines not only economic wealth but also political stability. The deep-seated fear of inflation is therefore more than understandable. Your own national experience is at once a powerful reminder and steadfast obligation for the central bank.
It is also important to understand that our measures are designed not only to help the people in countries under stress. In fact, in line with our mandate, they serve the citizens of the whole euro area. Many of the financial developments that concern people in this country – such as meagre returns on their savings or large imbalances in the Target-2 payment system – are really only the mirror image of fragmentation in the rest of the euro area. As money flows out of stressed countries and into safe-haven countries like Germany, it pushes up interest rates in the stressed countries, and pushes down interest rates here. These flows cause Target-2 imbalances to increase.
What has not been sufficiently acknowledged, however, is that these imbalances would only affect German taxpayers in the event of a break-up of the euro area. This means that actions by the ECB that protect the euro area against such outcomes – like the OMTs – also reduce hypothetical risks for German taxpayers. And this is exactly what we have seen. Since the announcement of the OMTs, the Bundesbank’s Target-2 exposure has decreased by more than €100 billion.
In sum, the ECB has acted, and will continue to act, to fulfil its mandate. We are committed to preserving the integrity of our currency, in the interests of all people of the euro area. We do not act to help banks. We do not act to help governments. We act to help maintain the flow of credit to real firms and households. We act to preserve price stability. Incidentally, while some in this country are wondering whether the ECB does “too much”, elsewhere in the euro area I am asked why the ECB does not “do more”. I just returned from the Spanish Parliament in Madrid – and the concerns expressed there are very different from what I hear in Germany. People worry that a stagnating economy will lead to the emergence of a “lost generation”, where young people have no jobs, and even worse, no hope.
Full speech
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