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Are you saying the euro crisis is over?
No, but the fears felt by some sectors of the public in Germany have not been confirmed. What haven't we been accused of? When we offered European banks additional liquidity two years ago, it was said there would be a high rate of inflation. Nothing has happened. When I made my comment in London, there was talk of a violation of the central bank's mandate. But we had made clear from the beginning that we are moving within our mandate. Each time it was said, for goodness' sake, this Italian is ruining Germany. There was this perverse Angst that things were turning bad, but the opposite has happened: inflation is low and uncertainty reduced.
In Germany, ECB policy is unpopular because you have now pushed the interest rates for investments down so far that they are often no longer enough to compensate for inflation. In other words, only fools save.
That's not the fault of the ECB. The link between the short-term interest rates set by the ECB and the long-term interest rates paid on investments which are relevant for savers in Germany is not very strong. Especially in recent years, we were unable to control long-term interest rates - because investors were very unsettled by the euro crisis. That's why everyone has been taking money into Germany to buy safe German government bonds. That's why the interest rates in Germany have fallen. We take the concerns of savers very seriously. But how can we respond? We run monetary policy for the entire euro area, not for a single country. If we are able to dispel the uncertainty, many investors will again take their money out of Germany and back to their home countries and interest rates will rise again.
The Fed has now announced to reduce the purchases of government bonds. What does that mean for the euro area and the euro?
So far markets have shown that the announcement by the FOMC has not affected the euro area markets. Their resilience is greater than a year ago.
The Banking Union is going to come now and create a level playing field for all banks in the euro area. How important is the project for the monetary union?
Extremely important. Europe's financial system is still fragmented. Although the gap in funding costs for banks within the euro area is no longer as wide as it was two years ago. But in lending the differences are still very large, and in some countries the credit flow is disrupted. The banking union can help to restore confidence in cross-border lending. The most important objective of the Asset Quality Review is transparency. We want to shed light on what is hidden in the banks' balance sheets.
The EU has just agreed on a procedure how to handle banks that are not viable. Does the new resolution mechanism meet your wishes?
I really want such a mechanism to work. We, as a supervisory body, decide only whether a bank is viable or not. Then the resolution authority has to decide what to do with the bank: close it, split it up or sell it. The problem is, when we say that the bank is not viable, steps then have to be taken extremely quickly. And it is certain that it does not work when hundreds of people across Europe have to discuss what needs to be done.
But is that certain with the decision taken now?
If urgent action is needed we'll have a fast-track procedure that gives the Council and the Commission 24 hours to decide on proposals of the Board of the resolution mechanism. If they don't decide a bank faces liquidation, so there will be enough pressure to find a solution.
What condition are European banks in?
To find that out, we will be closely examining the balance sheets of banks in the coming year. No conclusive judgement can be reached prior to that. But the banking system is now in a much better position than four years ago. Since then, around €0.5 trillion of fresh capital has flowed into the euro area banks and many institutions have changed their business models. What is also certain is that almost all banks have been operating much more profitably and with lower costs.
Many expect that [Germany's FCC] judges will set a limit on government bond purchases. What will you do then?
There are already limits. We have said from the beginning that our programme would be limited to the purchase of securities with short maturities. Apart from that, we can only wait, we have no plan B.