peter praet : economic adjustment in the euro area speech by mr peter praet, member of the executive board of the european central bank, at the institutional money congress 2013, frankfurt am main, 27 february 2013. * * * i would like to thank arthur saint - guilhem, melanie ward - warmedinger and niels bunemann for their contribution to the preparation of this speech. ladies and gentlemen, introduction thank you for inviting me to share some thoughts with you on what has been achieved and what remains to be done in the process of addressing the economic challenges we are faced with in the euro area. i will give you a central banker ’ s view on the role of monetary policy in managing the current crisis, but i will also extend my discourse to cover the broader institutional landscape, including some thoughts on what policy - makers in other fields than monetary policy could contribute to improve the euro area ’ s resilience. today, i will focus on three points : first, the european central bank – together with the national central banks of the eurosystem – has acted forcefully within its mandate, in order to counteract any risks to price stability stemming from the crisis. the ecb ’ s monetary policy during the crisis has invoked both standard instruments such as interest rate changes and non - standard instruments to ensure that the standard instruments would have the intended effects. second, the most distressed countries within the euro area have embarked on a correction of their policies. this correction is painful and requires perseverance of all responsible parties. the reward should be positive results that are now in fact tentatively observable. third, governance reforms at the level of the euro area and the european union at large have contributed to an improvement of the foundation for a better performance in future, and this work is still in progress. the multi - layered crisis when looking at the crisis as it has developed since 2007, it can be helpful to use the metaphor of an iceberg. in each phase of the crisis we have discovered new layers, from the visible tip of the iceberg to the dangerous ice cliffs that linger under the surface – and which, in the economic context, have emerged in the subsequent phases, each time proving to be larger than previously thought. this has challenged policy - makers to acknowledge the real dimensions of the problems, and to adjust their response accordingly. the tip of the iceberg – the liquidity crisis – was revealed in mid - 2007 when the us mortgage market, which lay at the basis

normal and crisis times. the intensity and the choice of instruments in a crisis might need to be adjusted, but monetary policy should continue to act within the same stability mandate and following the same long - term objectives as in normal times. third, the ecb ’ s monetary policy actions have offset market dislocations and thereby contributed to restoring distributional neutrality during the crisis. in particular, non - standard measures have helped to eliminate tail - risks and, together with the standard measures, have prevented very adverse outcomes for the euro area that would have hit in a disproportionate way the weakest in society, and put at risk price stability. and finally, despite the temporary relief brought by our policies, there are limits to what monetary policy can do. steering income allocation within countries and across countries is the responsibility of elected governments and other authorities. important work has been done, but in the current environment it is essential that euro area governments continue their reform efforts, individually and jointly, keeping in mind the need to curtail rent - seeking behaviour and protect the weakest in society. thank you for your attention. bis central bankers ’ speeches