##s and efficient in minimising the associated costs to the real economy. this would allow short - term interest rates to continue to be the primary tool for hitting the inflation target in the short - to - medium term, supported by additional instruments which are used to manage emerging imbalances which may pose substantial risks to economic stability further out. strengthening the policy framework in this way should lead to greater economic and financial stability. but we should not be lulled into a false sense that it will solve all our problems. operating such a framework will continue to require finely balanced judgements and difficult decisions. and no policy toolkit can anticipate all future changes to the structure of markets and the economy, or to the shocks hitting them. the process of increasing the robustness of the macroeconomic policy framework should be seen as continuous, not a one - off response to the current crisis. 3. a response to some criticisms of the asset purchase programme strengthening the policy framework in this way should help to reduce the likelihood of future crises. i thought i would end today with a few words on the progress we are making in managing the current crisis and, in particular, by addressing some of the concerns that have been raised about the asset purchase programme. as you know, the objective of the asset purchase programme is to increase the growth of nominal spending to a rate consistent with meeting the inflation target. there are a number of channels through which the asset purchases should help to stimulate demand. purchases of gilts are likely to cause investors to reallocate their portfolios into other assets, including corporate bonds and equities. this increase in demand for corporate assets should help to reduce borrowing costs faced by firms. moreover, expansion in the supply of money and liquidity may in itself encourage greater levels of lending and borrowing. not least, bank deposits are likely to increase as a result of our asset purchases, providing banks with a ready source of funding. purchases of private sector debt should aid the functioning of corporate credit markets and so improve the availability of credit via these markets. and the programme of asset purchases should help to demonstrate the committee ’ s ability and willingness to do whatever it takes to hit the inflation target and so help to ensure that inflation expectations remained firmly anchored. the bank has so far purchased a little over £96bn of assets and is on track to have purchased £125bn of assets by the end of july. it is still early days in terms of judging the ultimate success of the programme in stimulating

page 1 sur 8 asociacion de mercados financieros annual financial convention madrid, 21 november 2016 francois villeroy de galhau, governor of the banque de france europe facing a new political economy mr. president, ladies and gentlemen, thank you for your invitation. i am grateful for the opportunity to speak here in madrid today with my friend governor l. linde, in the midst of the spanish financial community, and in a country which has demonstrated its active commitment to the european project since it joined the european union thirty years ago. we have come a long way in europe and our common history and past success will help us look ahead in these challenging times. the brexit referendum in june and mr. trump ’ s victory two weeks ago have indeed come as shocks for europe : both have increased uncertainty and are raising questions about the european identity. how should we, as europeans, react? not by less europe : this would clearly be a mistake if we want to collectively master our own destiny in this new world. but by a better europe, a more focused and efficient one. in concrete terms, we need to adapt in two ways : first, by building actively on our economic and social assets – among them our single currency and monetary policy ; second, by coming together around a few new select priorities – including tackling the current “ investment crunch ”. * * page 2 sur 8 i. first, europe ’ s assets in the new “ political economy ”. let me start with a brief remark about terminology. for a long time, economic thinkers used the term “ political economy ” to refer to the discipline that we now call “ economics ”. adam smith, david ricardo or leon walras, to name but a few, were some of its exponents. despite its 400 year - old history, the term “ political economy ” had in the last decades gradually lost its importance as a comprehensive way of understanding economic issues. and yet it could now be returning to the forefront, given the strong interactions between politics and economics. at the international level, we cannot yet predict what mr. trump ’ s presidency will really be like, but we can expect a deep political shift, with consequences for american economic policies. besides, the electoral cycle will continue in europe, starting with the italian referendum in december. to state the obvious, the first certainty is that we are facing a lot of uncertainty. how will europe overcome this? i sincerely hope not by “ waiting and