on our balance sheet will remain stable for a good while, and that the downward pressure on longterm interest rates will persist. in other speeches, peter praet has already shown that the reinvestment policy indeed has a very persistent impact on term premia2. likewise, our continued pledge to keep key policy rates at their current levels well past the end of net purchases has assured in the past and will assure in the future that the short - end of the curve remains firmly anchored at low levels. as we move further in time, the main instrument for shaping the stance will again become the key policy rates, including forward guidance about their likely evolution. as such, our communication will likely be further specified and calibrated to ensure that inflation continues to evolve in line with our objective. we will continue to inform markets to the best of our ability about the state of our thinking about the way forward, making adjustments to our policy as predictable as possible. predictability and gradualism should also limit the spillovers to central, eastern and southeastern european ( cesee ) countries when we decide on normalizing our monetary policy. indeed, the federal reserve “ taper tantrum ” of may 2013 did lead to sizeable capital outflows from catching - up economies, including in the cesee region. however, the monetary policy tightening alluded to in ben bernanke ’ s tapering speech came as a surprise to financial markets ; as said before, the ecb ’ s monetary policy normalization aims to be gradual and predictable. moreover, since then, cesee countries have taken steps to reduce their vulnerabilities : most of them now have deeper local currency debt markets, smaller macro imbalances, and stronger macroeconomic frameworks. nevertheless, cesee countries are still exposed to a tightening in global financial conditions, due to their generally elevated external liabilities ; at 56 % of gdp on average ( in 2017 ), most cesee countries have a relatively high external debt ratio. vulnerability to a rise in global rates varies greatly across the region, however, reflecting not only differences in debt levels but also in the structure of countries ’ external liabilities, including the role of fdi versus more volatile capital inflows in those liabilities and the shares of foreign currency and short - term debt. hence, cesee countries should take advantage of the current stronger global economy to 4 / 5 bis central bankers'speeches continue to build resilience to changes in external financial conditions. structural

the crisis. first, loan demand fell sharply as a result of the deterioration in economic conditions, which limited current and planned spending levels and, hence, the need for new credit. second, the need of households and non - financial corporations to deleverage and rebuild a sounder financial position is another factor behind the pronounced slowdown in credit demand. to give you some figures, non - financial corporation debt ratios grew rapidly during the last expansion up to close to 120 % of gdp in mid - 2010, clearly above the average values in the euro area, which stood at around 80 % of gdp at that time. similarly, the household debt - to - gdp ratio rose up to almost 85 % in the same period, 20 pp above euro area levels. bis central bankers ’ speeches 2. 2. supply - side frictions turning now to the supply side, there exist some frictions that tend to exacerbate the negative pressure on credit exerted by the contractionary demand factors. one significant friction in this regard is the existence of asymmetric information between lenders and borrowers, a circumstance that limits the ability of the lenders to assess correctly the actual level of risk posed by a given borrower or a project. this friction normally intensifies during periods of crisis and, for reasons well known, is comparatively more relevant in the case of small and medium - sized firms as opposed to large companies. the comparative disadvantage of small firms in accessing financing relative to their larger competitors has, in fact, been one of the most pervasive features of the recent crisis, despite the mitigating impact provided by the special facilities activated by many of the public institutions represented here today. another factor that significantly restrained credit supply conditions until recently was the financial fragmentation of the euro area that emerged as a result of the tensions in the european sovereign debt markets. in fact, one of the most visible consequences of financial fragmentation was the strong sensitivity of funding costs to the borrowing agents ’ nationality and not just to their creditworthiness. thus, drawing all the strands together, i think it is reasonable to conclude that the unsustainable accumulation of debt over the previous expansion paved the way for the subsequent credit contraction seen during the crisis. in my view, this contraction reflects primarily the sizable and unavoidable downward adjustment in the demand for credit. however, a number of frictions related to the supply of credit, such as those discussed earlier, have also played a relevant role. 3.