vitor constancio : interview with spiegel online interview with mr vitor constancio, vice - president of the european central bank, and spiegel online, conducted by mr stefan kaiser and mr henning jauernig on 22 may 2018 and published on 29 may 2018. * * * mr constancio, you ’ ve worked at the european central bank for 18 years. was there ever a moment when you thought that maybe the euro wasn ’ t such a good idea after all? no. there were times at the height of the crisis when there were existential doubts about how things would turn out. but i was never in any doubt that monetary union was the right thing for european countries. but there were some very severe crises. in 2012, for example, when the risk premia for spanish and italian government bonds rose dramatically and there was a risk that the euro area might break apart. or in 2015, when greece was close to bankruptcy. didn ’ t that demonstrate that the euro area doesn ’ t work well? the problems were a consequence of the way the euro area was set up to start with, which was very minimalistic. at the time, it was felt that all we needed was a single currency, a central bank and a fiscal brake. but events have shown that that wasn ’ t enough. for example, a crisis mechanism was not envisaged and there was no banking supervision at the european level. a number of important decisions have been taken in the meantime, for instance on the banking union and the european stability mechanism. the euro area has started to fix itself – and we ’ re still in the middle of that process. have the countries in the south of the euro area done enough on their side to fix monetary union? yes. the countries hardest hit by the crisis had high budget deficits and high current account deficits at the start of the crisis. so they were importing a lot more than they were exporting. but a great deal has been done since then. in the meantime, all the countries concerned have a primary fiscal surplus, which means that they are reducing their debt bit by bit. and all these countries now have a current account surplus ; they are exporting more than they import. that is quite a turnaround. these achievements are now hanging in the balance because one country may no longer want to do its part. even if their attempt to form a government has failed for now, italy ’ s dominant parties are euros

2015, the euro area was experiencing negative headline inflation rates. crucially, there were also material signs that inflation expectations were becoming unanchored, which increased the likelihood that inflation would stay below our objective even when the oil price effect faded. these data, especially measures of inflation expectations, were sufficiently decisive to warrant our shift to large - scale asset purchases in january this year. the prevailing macroeconomic outlook meant that the benefits of deploying that instrument in terms of delivering our mandate now clearly outweighed the costs in terms of potential side effects. but by waiting for adequate evidence, had we ended up “ behind the curve ” in counteracting the disinflationary trend? in my view the answer is clearly no. first, we had taken a series of expansionary measures throughout 2014 in response to the incoming data, including cutting our main refinancing rate to its effective lower bound ; introducing a negative rate on our deposit facility ; launching our targeted long - term refinancing operations ( tltros ) ; and, importantly, in september 2014, with our decision to begin purchases of abs and covered bonds. second, by communicating clearly the conditions under which we would use large - scale asset purchases – our so - called reaction function – we had already initiated a gradual easing of financial conditions as markets anticipated our measures. long - term nominal interest rates fell by around 100 bps from mid - 2014 to january 2015. because we were predictable and credible, our policy was taking effect before it was actually announced in january. third, even though our measures were partly priced - in, when they were launched the initial impact was stronger than many expected and the response of macroeconomic indicators was quicker. we have seen strong signalling effects, reflected in rising inflation expectations, a rebound in consumer and business confidence and higher equity prices. and we have also seen evidence of significant portfolio rebalancing effects, both across assets classes ( i. e. towards more risky assets ) and across jurisdictions, producing a fall in the effective exchange rate. as a result, the economic recovery has broadened and the june ecb staff projections now envisage inflation to average at 0. 3 % in 2015, 1. 5 % in 2016 and 1. 8 % in 2017. our actions have proven timely and provide us, so far, with comfort that the medium - term inflation outlook is secure. both output and inflation forecasts are broadly balanced. bis central bankers ’ speeches these forecasts are however contingent