this is the case? once again, the theoretical natural rate benchmark can help to answer this question. an economy in which nominal variables play no role is in fact equivalent to an economy in which inflation is always constant at zero. the natural rate benchmark therefore indicates the ideal interest rate setting for a central bank aiming to maintain price stability in a monetary economy. taking a wicksellian perspective, policy interest rates below the natural level would produce inflationary pressures, while higher rates would push the economy into deflation. it follows that a simple gauge of whether the level of actual policy interest rates is consistent with an ideal natural level, or instead excessively high or low, is to look at inflation expectations. the latest ecb staff macroeconomic projections for the euro area foresee a rate of annual inflation in 2014 of only 1. 3 %, down from 1. 5 % in 2013 – both rates somewhat below our own definition of price stability, which is below, but close to, 2 %. inflation for a discussion of the determinants of saving during the great recession, see mody, sandri and ohnsorge ( 2012 ) “ precautionary savings in the great recession ”, voxeu, http : / / www. voxeu. org / article / precautionarysavings - great - recession. see n. bloom, the impact of uncertainty shocks, econometrica, vol. 77, no. 3 ( may, 2009 ), 623 – 685. bis central bankers ’ speeches projections therefore do not support the hypothesis that ecb policy interest rates are excessively low. if anything, our staff estimates that real output in the euro area will contract by 0. 4 % in 2013, and return to a timid 1 % growth in 2014, justify an easing bias to future monetary policy decisions. such a bias is an integral part of the design of the recent and unanimous governing council decision to provide forward guidance. while our mro rate is still strictly above its zero lower bound, giving us some scope for further reductions if deemed appropriate in the light of incoming economic and monetary data, our forward guidance is primarily intended to reduce uncertainty about future policy decisions. this act of policy transparency strengthens the effectiveness of our accommodative policy stance by exerting downward pressure on medium - term interest rate expectations. 6 heterogeneity across countries i have so far argued that ecb policy interest rates are appropriate for the euro

borrowed amount. the main insight here is that the redistribution of risk is not a zero - sum game, but that the overall risk in the economy, in our case in the monetary union, can be reduced. i agree with this view, but i would like to stress that the redistribution of risks is only a means to an end – achieving price stability. and any such insurance provided by the central bank should come with appropriate safeguards to mitigate moral hazard, or we would be trading short term stability against long term instability. in terms of impact on our balance sheet, our main non - standard measure is represented by the unlimited provision of liquidity at maturities up to three years and the enlargement of the set of eligible collateral within our risk control framework. banks ’ recourse to ecb ’ s unlimited provision of liquidity has been particularly intense in countries under pressure in sovereign bond markets. this measure has helped to ease bank funding constraints. in countries facing stress in sovereign bond markets, this has made it possible for banks to ease lending standards and foster better credit conditions for borrowers. in parallel to the unlimited provision of liquidity to banks, we have designed our outright monetary transactions ( omt ) programme to rule out self - fulfilling, deflationary equilibria associated with unjustified fears of currency redenomination. the omt programme has successfully contributed to the normalisation of europe ’ s financial market and largely restored the attractiveness of a broader set of saving opportunities. thanks to the introduction of the omt, the strong divergence in funding costs across countries has been to some extent reduced. the reduction in sovereign risk premia towards levels consistent with economic fundamentals can generate positive dynamics ; first and foremost by improving the balance sheet of sovereign bondholders ( in particular banks ). these bondholders, in turn, will see their creditworthiness increase and, at the same time, be able to invest in riskier, yet more profitable, projects. therefore, while our non - standard measures were designed for the euro area as a whole, their use has varied among counterparties and across countries. in this regard, our non - standard measures have helped restore the distributional neutrality of our monetary policy by mitigating distortions in certain asset classes or sectors. their impact has prevented extreme economic outcomes for certain sectors and countries. however, permitting cross - country divergences to linger bears the risk of turning temporary wounds into permanent scars, thus undermining