The various packages of monetary accommodation implemented by the Governing Council since mid-2014 have already had considerable success in supporting nominal growth. Even though headline inflation is currently negative, it would have been significantly weaker (around 80 basis points in 2016 according to the Euro-system’s estimates) without these interventions. Real economic growth is slightly stronger and unemployment lower. However, it is important to stress that monetary policy is a companion to structural reforms rather than a substitute. Stimulatory monetary policy cannot be an excuse to postpone structural reforms. Indeed it sometimes feels as if central banks had sole responsibility for supporting growth in the short-run. This is not a comfortable position for us and should not be an acceptable position for any of you. Our monetary policy accommodation has made the cost of investment considerably cheaper but its effectiveness is blunted somewhat if entrepreneurs feel constrained by structural impediments and a lack of economic reform. The OECD has  11  S.Gilchrist and B.Mojon, Forthcomning “Credit Risk in the Euro Area.” The Economic Journal. 12  V. V. Acharya and S.Sascha, 2015. “The ‘Greatest’ Carry Trade Ever? Understanding Eurozone Bank Risks.” Journal of Financial Economics, 115 (2): 215–236. 13  C. Teulings and R.Baldwin, 2014. “Secular Stagnation: Facts, Causes, and Cures” VoxEU.org eBook, CEPR Press. 14  M. Cacciatore, R. Duval, G. Fiori and F. Ghironi, 2016. “Market Reforms in the Time of Imbalance,” NBER Working Papers 22128, National Bureau of Economic Research, Inc.; in ‘t Veld, Jan. 2013.

To counteract this impairment of the credit channel, the Governing Council has, alongside other non-conventional measures which don’t need repeating, also launched two targeted lending programmes. These so-called TLTROs I and II allow banks to borrow up to a fixed fraction of their loan portfolio at an interest rate linked to the ECB official rates. Banks that make new loans in excess of their benchmarks receive a lower average cost of funding. This provides a powerful incentive to expand lending and goes some way towards alleviating funding risks when nominal interest rates are negative. In a further step to alleviate the credit channel, the Governing Council decided to include corporate bonds in its asset purchase programme in March 2016. This should directly reduce the cost of corporate borrowing in capital markets. Overall, these measures have been quite effective in easing credit conditions in the Euroarea. The volume of bank lending to non-financial corporations has begun to grow again and bank lending rates have fallen across the Euro-area but most noticeably in those countries where that had tightened the most. 2. Monetary policy can foster long-term growth by supporting structural reforms  The financial crisis in some ways revealed some structural weaknesses in many economies. In some cases there were excessive levels of public debt. 10 In others it were structural  6  R. Riley, C. Rosazza-Bondibene and G. Young, 2015. “The UK productivity puzzle 2008–13: evidence from British businesses,” Bank of England working papers 531, Bank of England.