Yet, despite highly expansionary monetary policies around the world, many large advanced economies have not recovered as strongly as hoped. In Switzerland, the recovery has been relatively robust by international standards. Yet inflation in our country, as in many other countries, is still lower than we would like. So the past few years have shown clearly that an expansionary monetary policy is not a panacea for catalysing growth in the major advanced economies. Expansionary monetary policy is no substitute for necessary structural measures and it must not delay them. Monetary policy influences the economy’s growth potential only insofar as price stability reduces uncertainty. Beyond this, it has no effect on economic growth in the longer term. For this reason, longer-term growth prospects can only be improved through structural measures. For instance, the promotion of education, research and development can increase productivity growth. Good economic conditions support growth: if entrenched labour market structures are dismantled, competition is encouraged, and contracts are reliably enforced, the economy  Page 8/16  becomes more efficient. A pension system that is sustainable in the long term can allay people’s fears about an uncertain income in their old age, and thereby avoid an excessive propensity to save. If such reforms in the major world economies are successful in positively influencing expectations about future income and returns, then global demand for consumption and investment could rise today.

Together with the SNB’s willingness to intervene on the foreign exchange market as necessary, the negative interest rate policy has prevented further Swiss franc appreciation and has generally helped to reduce pressure on the currency. Third, in an environment of low interest rates worldwide, the negative interest rate is necessary and appropriate for Switzerland. As a small open economy, Switzerland cannot decouple itself from the global low interest rate situation. What would have happened if the SNB had not introduced negative interest? The Swiss franc would have appreciated even more strongly, there would have been a slowdown in growth accompanied by even lower inflation, and unemployment would have risen. Fourth, a phase of low interest rates, especially a prolonged one, can have undesirable sideeffects, including the possibility of cash hoarding, which limits the scope for monetary policy action. There can also be undesirable consequences for financial stability, which should not be  Page 9/16  underestimated. These challenges and side-effects will amplify, the longer interest rates remain low. Fifth, against this backdrop I would like to emphasise that negative interest, or expansionary monetary policy in general, is no panacea. For a sustained economic recovery, adjustments in the real economy are necessary. Structural measures in the major economies can create the conditions for equilibrium interest rates worldwide to rise once more. This would also allow central banks to embark on a gradual process of normalisation, and the potential adverse effects of persistently low interest rates would be contained. Thank you for your attention.