In the case of the ECB and the Riksbank, negative policy rates were intended to provide additional monetary accommodation to ensure price stability over the medium term and a return of inflation to the central bank objective. Money market rates in the jurisdictions adopting negative deposit  1  The press releases announcing the interest rate decisions by the SNB, the ECB, and the Riksbank can be found at the links that follow: http://www.snb.ch/en/mmr/reference/pre_20150115/source/pre_20150115.en.pdf, http://www.ecb.europa.eu/press/pr/date/2014/html/pr140904.en.html, http://www.riksbank.se/en/Press-andpublished/Press-Releases/2015/Riksbank-cuts-repo-rate-to-025-per-cent-and-buys-government-bonds-forSEK-30-billion/. BIS central bankers’ speeches  1  rates have also moved into negative territory, suggesting that the transmission of policy rates into market rates has continued. The central banks implement their negative rate regimes in different ways, but in each case some of the bank reserves on deposit at the central bank are subject to negative rates. In other words, some commercial banks are charged periodically for (some of) their deposits at the central bank. In addition, some central banks conduct both overnight and term repo and reverse repo transactions at negative rates. In addition to implementing the negative policy rates, each of these central banks has employed a variety of other tools to support its policy objectives, such as significant foreign exchange intervention for both the SNB and Danmarks Nationalbank and programs of asset purchases, or quantitative easing, for the ECB and, in a smaller-scale program, the Riksbank. In an important sense, lowering interest rates to reduce capital inflows into a currency or to provide more accommodative financial conditions is a standard practice of central banking.

While common monetary policy has been successful, the crisis has shown that we need more solid common institutions in other policy areas. In particular, a common monetary policy requires a common regulatory framework for the financial sector to be able to adequately repair the financial system, thereby securing a durable recovery in the euro area. The adverse impact of “zombie banks” and the evergreening of loans in Japan serve as a stark warning signal. Given the challenges ahead, we should not relax our efforts to put the euro area economies on track to strong and sustainable growth. That way, we can turn the current challenges into opportunities – as the title of today’s event suggests. Further managing the deleveraging process will be key, especially balancing the speed of adjustment and reforming euro area governance. Let me elaborate on these two aspects in turn. Managing the deleveraging process To overcome debt overhangs, we have basically two options. We can consolidate or restructure debt to address the nominal debt stock; or we can implement growth-enhancing structural reforms that make our economies fitter to grow out of the debt burden. Or we could opt for a combination of both. A third theoretically possible option allowing for higher inflation to reduce the real value of the debt would go against the core mandate of central banks. In recent years, we have seen some consolidation in Europe.