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Speech by Peter Praet, Member of the Executive Board of the ECB, at the conference “Beyond Monetary Policy”, 7 October 2016.
In my speech on monetary transmission in the euro area at the SUERF conference in New York, I stressed the constraints and challenges that central banks had to confront while operating for many years near the effective lower bound on interest rates. 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.
In my contribution today, I would like to address the topic from this particular perspective, and, starting with monetary policy, go beyond monetary policy by setting out the policy requirements for the smooth functioning of EMU.
First, I want to explain how ECB monetary policy has maintained price stability over recent years in the face of a series of adverse shocks, and despite an incomplete institutional environment.
Second, it is clear that monetary policy cannot be the only game in town for too long a period. I will thus stress the need for other policy areas to contribute to supporting the recovery and to fostering long-term growth.
Third, I will argue that we need determined progress towards deepening the institutional foundations of EMU if we want the euro area and its Member States to become more resilient to adverse shocks in the future.
I will conclude that ‘secular stagnation’ – one of the issues for discussion proposed by the organisers – is not Europe’s destiny if we make sufficient progress along these dimensions.
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The ECB has taken determined and unprecedented action to maintain price stability and to prevent the euro area from settling into a bad equilibrium. For the euro area and its member states to thrive it is important that member states individually and collectively contribute decisively to strengthening the recovery and the resilience of the euro area economy. I am convinced that if – as prescribed by the Treaty – “member states regard their economic policies as a matter of common concern”, they can take action conducive to increasing the euro area’s long-term growth potential and resilience to adverse shocks. In this sense Member States collectively control the destiny of the euro area and through well-aligned policies can make sure that “secular stagnation” will not take hold in the euro area.
Full speech on the ECB's website