Otherwise, 5  households and firms would simply withdraw money from the banking system and hold cash. This ‘zero lower bound’ is another constraint on monetary policy and one that had not been envisaged when the monetary policy framework for the euro area was designed. In response, the ECB embarked upon a range of non-standard measures. First, following the example of several other central banks, the Governing Council pushed the overnight deposit rate into negative territory and the rate on the main refinancing operations down to zero. Second, the ECB launched, and then extended, an asset purchase programme, pushing down long-term sovereign bond yields and lowering borrowing costs for the private sector as well. Third, the ECB began offering banks a series of targeted long-term  refinancing operations on favourable terms, aimed at prompting them to lend to the private sector. These measures were aimed at stimulating economic activity, staving off the threat of deflation and pushing inflation back up towards its target of below, but close to, 2%. These unconventional policy measures have been instrumental to provide additional accommodation to the economy and prevent a self-sustaining fall in inflation. However, although economic activity has firmed, inflation still has not converged with the ECB’s objective. Underlying inflation pressures remain subdued. The Governing Council continues to hold that such an accommodative monetary policy stance must remain in place until a sustained adjustment in the path of inflation has been achieved. Until now, we do not have sufficient evidence that we have reached this critical point.

The Euro-Summit on 15th December 2017 resulted in a renewed political commitment to foster further progress on EMU´s architecture during the first semester of the present year. The aim was to trigger the necessary discussions and achieve material progress in the 3/5  months preceding the closure, in spring 2019, of the current legislature of the European Parliament. Our political leaders assigned priority to the completion of the Banking Union, with the establishment of a common fiscal backstop for the Single Resolution Fund, and the introduction of a common European Deposit Insurance Scheme (EDIS) with eventual full risk mutualisation. Both are essential elements to severe the links between banks and sovereigns and to bolster the ability of the area to deal with large macroeconomic shocks. The development of the Capital Markets Union is surely another key project that deserves to be mentioned at the top of the political agenda. Leaders also agree on the need to reduce risks in banks’ balance sheets, including –but not only- the stock of non-performing loans, which is still too large in some jurisdictions. Current proposals to create Sovereign Bond-Backed Securities (SBBS) could contribute to reduce current home-bias in bank´s sovereign holdings if accompanied by regulatory reforms that ensure acceptance by investors. But these reforms should be carefully calibrated to avoid hindering liquidity and price formation in sovereign bond markets. But there are other issues that will require more time to agree and to put in motion.