recessionary effect. shall i show you what the expectations ’ curve for the inflation rate looks like? it is actually astonishing. yes, please do. look at this ( he holds out a piece of paper ) : the average annual inflation rate expected during the course of the following year used to stand at around 1. 77 % in the past ; in 2013 it stood at 1. 08 % and now it is only 0. 37 %. in germany? in europe. now, the figures for the future five - year period. in the past, the average inflation expected for the next five years was 2. 31 % and today it stands at 1. 68 %. looking at a tenyear period, it stood at 2. 09 % in the past and today it stands at 1. 15 %. that ’ s how it goes! and what does this mean, do you think? it means that the risk of deflation is still low but it is definitely higher that it was a year ago. you are more concerned about deflation than inflation then? both are undesirable. but from a central banker ’ s perspective, inflation is easier to tackle than deflation. why? when there is inflation, you raise the interest rates. in this way, the price of money increases, the volume of cash in the economy shrinks and the pressure on bis central bankers ’ speeches prices and wages recedes. with deflation it is harder. we are now in a situation in which we should reduce the interest rate further, but that is no longer possible. at this point, we need to take recourse to unconventional measures, meaning we need to change the size and the composition of the european central bank ’ s balance sheet are you talking about the thousand billion that you want to spend over the next few years, predominantly by purchasing government bonds, and which is to be decided upon at the ecb over the next week. i never said “ thousand ”, but as guidance, i mentioned the balance sheet size of the european central bank at the beginning of 2012. there is huge criticism in germany of the large - scale purchase of government bonds, also from political parties. is it the worst response that you have had thus far as president of the central bank? possibly the three months after my speech in london were similar. ( what is meant is draghi ’ s commitment at an investors ’ conference in july 2012, in which he said that he would “ do whatever it takes ” within

as regards europe, oecd, economic survey of the euro area 2009. body. the second avenue would be to assign new competences to the escb or to a body close to the ecb. these may well be medium - term solutions, and take some time to be implemented, but it might be useful to think along these lines in order to move towards a stronger european supervisory framework. the pros and cons of the various models have been examined thoroughly in the literature. 3 the discussion has sometimes bordered on the doctrinal, if not dogmatic. but pragmatism is the key. after all, even within countries there have been changes over time, in one direction or another. in all likelihood, there is no perfect system. even the us is currently considering changes to its supervisory framework, and there are concrete proposals on the table. i can misquote keynes and say that when the facts or circumstances change or when new information emerges, i can change my mind. indeed, i have partly changed my mind in the light of experience. let me share with you some of these reflections. i won ’ t go into all the pros and cons of the various models, but just make a few observations. in the 1990s, the trend was to separate prudential supervision from central banking. it was thought that the conduct of monetary policy would be “ polluted ” by prudential supervision considerations. the temptation to try to help some banks with monetary policy tools would be greater if the central bank exercised prudential competences. on the other hand, given that supervisory powers are closer to the political authorities and that ultimately taxpayers may step in to prop up a failing bank, the governing body of the institution conducting both monetary policy and prudential supervision would risk being more exposed to political pressures. this would undermine the independence of the central bank. furthermore, the negative reputation effects of unsuccessful supervision can undermine the credibility of the central bank and its monetary policy. this has happened in the past, although it has mainly affected central banks which were not fully independent. these arguments have been developed in the literature, and in fact were examined in a book written by daniel gros and myself in 2000. 4 recently i read a couple of other reasons for not entrusting the ecb / eurosystem with supervisory tasks. the first is that conferring direct micro - prudential supervision responsibility would considerably reinforce the powers and influence of the ecb, which