olli rehn : to what extent should the state or the european union use monetary and budgetary policies to counter the effects of crises and promote business development? initial remarks by mr olli rehn, governor of the bank of finland, in a panel on “ state at the helm of the economy ", “ les rencontres economiques 2020 ” webinar, 3 july 2020. * * * ladies and gentlemen, distinguished fellow panellists, it is a great pleasure to participate in this year ’ s les rencontres economiques d ’ aix - enprovence / seine to discuss current challenges facing our societies, and the role of the state during and after the crisis. in times of crises, the state and public authorities, both government and the central bank, typically need to step up their roles to prevent large - scale economic and social damage. the covid - 19 crisis is unprecedented both in terms of its global reach and its depth. thus, there is a clear case for sizable public support – both to contain economic damage and stabilise the acute financial turmoil, and to lay ground for a strong, solid recovery. however, in my view the increased role of government should, and can, only be temporary. in due course, we should return to the preferable balance of european social market economy, effectively combining entrepreneurial dynamism with social justice – or, if you like, competition and market forces with regulation and redistribution. we need sustainable, strong growth also to reduce the elevated level of public debt. how well has europe ’ s policy response so far followed such a ‘ crisis manual ’? one of the key lessons of the past financial and debt crises is that one must resort to an overwhelming force in monetary policy to contain financial market panic and prevent an economic collapse. as a response to the covid - 19 crisis, europe has embarked on unprecedented monetary stimulus, while corresponding fiscal stimulus should be on its way. hence, in monetary policy we are practicing what we have learnt. and that is fully consistent with our price stability mandate. for now, and apparently in the medium term, the effect of the covid - 19 pandemic is disinflationary rather than inflationary. moreover, the danger of deflation has recently re - emerged. this justifies the forceful monetary policy accommodation by the ecb, which is both proportionate and necessary. the ecb ’ s strong monetary stimulus is providing plenty of breathing space for

a reaction function that is sufficiently forceful and equally effective in reacting to deviations in both directions. a price stability target defined in such a symmetric manner would help us recover much of the needed policy space and re - empower conventional monetary policy. let me conclude by saying that while a symmetric inflation target and an effective reaction function would help us in achieving our price stability mandate, it would of course be no panacea – it would be no stairway to heaven, but certainly more than only smoke on the water. in other words, it would be one key building block in a broader construct of the strategy review, in order to enable the ecb ’ s monetary policy to better support sustainable growth and job creation, and also help reach its inflation target in the coming years. i will end here and look forward to your questions. 1 on the pandemics ’ generally dampening effect on inflation see especially jorda, oscar – sanjay r. singh – alan m. taylor ( 2020 ) : longer - run economic consequences of pandemics, federal reserve bank of san francisco working paper 2020 – 09 : doi. org / 10. 24148 / wp2020 – 09. 2 maritta paloviita – markus haavio – pirkka jalasjoki – juha kilponen – ilona vanni : reading between the lines − using text analysis to estimate the loss function of the ecb. research discussion paper 12 / 2020, 6 july 2020, bank of finland : helda. helsinki. fi / bof / bitstream / handle / 123456789 / 17503 / bof _ dp _ 2012. pdf? sequence = 3 & isallowed = y. 3 christine lagarde, the monetary policy strategy review : some preliminary considerations. speech at the ‘ ecb and its watchers xxi ’ conference, frankfurt am main, 30 september 2020. 2 / 2 bis central bankers'speeches