ECB/Mersch: Monetary policy in an environment of low growth and interest rates

13 June 2013

Speaking in Copenhagen, Mersch said that the ECB had not 'run out of ammunition', and that more tools and measures could be employed whenever they were needed.

Almost six years after the outbreak of the financial crisis in summer 2007, the economic situation in the euro area is far from back to normal. Unemployment is high in several member states, growth is expected to return only gradually and credit to the real economy is reaching the real economy fairly reluctantly overall and at different speed levels across euro area countries. Following its objective of safeguarding price stability, the ECB had to activate a variety of non-standard measures to improve the transmission of its accommodative monetary policy stance. However, we are still operating in a difficult environment and fragmentation of financing conditions across the euro area is one of the most prevalent problems.

I think that these messages characterise the policy landscape in the time to come:

1. Monetary policy has helped to prevent economic outcomes to be even worse than what we see today. Monetary policy accommodation is needed to keep prices in line with the ECB’s definition of price stability.
2. The ECB has not run out of ammunition. We can employ more tools and measures whenever they will be needed.
3. But monetary policy has limits: it is not effective when it comes to structural issues and we should keep in mind the challenges that arise from keeping interest rates too low for too long. Therefore we should not forget about the responsibilities of other policy areas:
   1. A properly designed banking union is essential to restore financial integration and to support a new steady state where bank balance sheets will be fit for lending
   2. Fiscal consolidation is required to spur and maintain confidence of consumers and investors
   3. tructural reforms are key to bring euro area economies back on a sustainable growth path.

For the ECB, the different crisis modes required various modifications in our tool box of monetary policy instruments. But our objective of price stability remained time-invariant. It has served as an anchor of stability in the euro area during the crisis; it is helping the transition to a new steady state of a better-integrated euro area economy; and it will certainly remain our guiding principle in the future.

Full speech

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