yet declare “ mission accomplished ” on the inflation front, but we have made substantial progress on the path towards a sustained adjustment in inflation. monetary policy, however, is only one side of the story. price stability is a necessary, but not a sufficient condition for sustained and balanced growth in europe. the run - up to the crisis proved that macroeconomic imbalances can grow amid price stability ( see charts 1 and 2 ), highlighting the need to keep economic policy high on europe ’ s agenda. 2 / 22 bis central bankers'speeches 3 / 22 bis central bankers'speeches in the second part of my talk i will therefore concentrate on economic policies and their essential role in ensuring a smooth functioning of economic and monetary union ( emu ). i will look back at the experience of the euro area since 1999 and illustrate the emergence of macroeconomic imbalances by focusing on three countries : spain, germany and france. the crisis acted as a litmus test for europe ’ s institutional framework, revealing the need for a number of institutional reforms. lessons have been learned and significant progress towards strengthening emu has been achieved, including elevating the responsibility of banking supervision from the national to the european level, the creation of the european stability mechanism as a permanent crisis management institution, and improvements in the eu surveillance framework for economic policies. 2 progress towards completing the banking union and the capital markets union has rightly emerged as one of the immediate priorities in strengthening emu, 3not least as such progress is seen as crucial in supporting macroeconomic adjustment in a monetary union. today it is fair to say that the euro area has lived up to the challenges posed by the existential crisis and euro area countries have displayed a strong commitment to emu. macroeconomic adjustment in emu has made significant progress, with countries implementing significant 4 / 22 bis central bankers'speeches growth - enhancing reforms and correcting external imbalances, but this process has been difficult and is not yet complete. countries most affected by the crisis were confronted with significant hardship, even though financial support provided by the eu and its member states to countries facing acute financing difficulties prevented catastrophic outcomes, and cushioned some of its impact by providing time for economic adjustment. looking forward, in order to sustain a high level of social welfare in the long term, euro area countries need to ensure that macroeconomic adjustment occurs smoothly and to prevent the build - up of durable imbalances. the impact of the ecb ’ s non - standard measures by mid

journal of central banking, 9 ( 1 ), pp. 3 - 39 and an isin - by - isin regression framework akin to d ’ amico, s. and king, t. b. ( 2013 ), “ flow and stock effects of large - scale treasury purchases : evidence on the importance of local supply ”, journal of financial economics, 108 ( 2 ), pp. 425 – 448. 8 to this end, for instance, an estimated term structure model is used following li, c. and wei, m. ( 2013 ), “ term structure modeling with supply factors and the federal reserve ’ s large - scale asset purchase programs ”, international journal of central banking, 9 ( 1 ), pp. 3 - 39. in this framework, yields are driven by three factors : the level and slope of the yield curve ( “ yield factors ” ) as well as a factor related to the central bank ’ s bond holdings ( “ quantity factor ” ). in quantifying the impact on bond yields, the model thus takes into account the effect of the central bank ’ s current and future expected bond holdings, including the impact of reinvestment. 9 euro area yields are proxied by the gdp - weighted long - term yield of the four largest euro area jurisdictions. the 10 - year yield impacts are obtained from a version of the li - wei ( 2013 ) model used at the federal reserve to 21 / 22 bis central bankers'speeches convert the soma portfolio of securities into yield impacts. impacts are shown for different app reinvestment scenarios, defined by the horizon indicated in the legend. the marginal impact of each additional year of reinvestment is given by the distance between the scenario curves. latest observation : february 2018. 10 praet, p. ( 2017 ), “ maintaining price stability with unconventional monetary policy measures ”, speech at the mmf monetary and financial policy conference, london, 2 october. 11 see the euro area bank lending survey, october 2017. 12 this chart shows the risk - neutral probability distribution function implied by two - year zero - coupon inflation options. these risk - neutral probabilities may differ significantly from physical, or true, probabilities. they are estimated on the basis of call ( “ caplets ” ) and put ( “ floorlets ” ) options with different strike rates on the ( threemonth lagged ) euro area hicp index excluding energy, food and tobacco, assuming black - scholes option