yves mersch : swedbank economic outlook seminar speech by mr yves mersch, member of the executive board of the european central bank, at the swedbank economic outlook seminar, stockholm, 18 may 2015. * * * ladies and gentlemen, there is an old saying that “ with money, latin and a good horse, you can get through all europe ”. these days a good command of latin does not help you much outside of the vatican city. most of us prefer to travel by plane or train. but at least in the 19 countries of the euro area, the money a citizen holds in his or her pocket crosses all national borders. this only remains the case, however, if that money keeps its value – which is our responsibility at the ecb. so i would like this morning to talk about the measures we have taken to meet that responsibility over the last year, and to give you my view on how we should address the risks they can entail. responding to low inflation from december 2011 onwards inflation in the euro area began a sustained downward drift, reaching its trough in january 2015. responding to this situation would be challenging for monetary policy in any circumstances, but was made especially difficult because nominal interest rates were already very low. in this context we have taken what, at face value, may appear to be a series of very unconventional measures – negative deposit rates, abs purchases, sovereign bond purchases, to name but a few. but it is important to underscore that the objective of these measures remains thoroughly conventional : to secure medium - term price stability. and in actual fact they fit together as a coherent package that reinforces our traditional monetary policy strategy of steering inflation developments largely through the bank lending channel. this package has three parts. the first part has been measures to increase the influence of our interest rate policy over the shape of the yield curve – especially the longer - term maturities that have the strongest link to loan pricing in the real economy. so, as the inflation outlook has deteriorated we have both reduced our main refinancing rate to the lower bound and introduced measures to augment the impact of those very low shortterm rates on longer - term rates. this has included steering downwards expectations about the expected path of short - term rates ; and introducing a negative interest rate on our deposit facility, which has helped further flatten the yield curve. overall this has measurably increased the traction of our interest rate policy on relevant market rates. yet it is one

of the economy. as we can only expect limited labour participation gains in an ageing society, to raise investment demand we therefore have to raise productivity. indeed, achieving an upward shock to tfp seems to me essential to trigger, in a sustainable way, a positive accelerator effect between productivity, investment and credit. but it requires an environment characterised by two things : competition and certainty. competitive markets are necessary to ensure that investment and productivity are indeed mutually enhancing, which as i said earlier is not a given : high investment in several euro area countries in the pre - crisis period did not lead to a convergence in tfp. certainly, an important reason for this was that too much capital flowed into real estate. but misallocation also resulted from low levels of competition in the non - tradable / services sector more generally which distorted price signals. as some firms could capture excess rents, a falling marginal product of capital was counterbalanced by rising profit margins, meaning that total compensation from investing in these sectors remained high. 16 so : the flipside of productive investment is more competitive markets that produce more accurate price signals, thus drawing resources to where they are most efficiently employed. achieving this requires not only product and labour market reforms that accelerate the “ churn ” process within and across sectors17, but also reducing unnecessary regulations that hinder the allocation and reallocation of resources. the world bank ’ s “ doing business ” report gives examples such obstacles. if an entrepreneur wants to start a new business in spain, she has to go through 10 separate procedures, while doing so in slovenia requires only two. if a firm wants to launch a green field investment, it would have to wait 200 calendar days in ireland before a new warehouse gets electricity ; in germany it would have to wait only 17 days. 18 there are reasons to be optimistic about the effects of a reform process in the euro area. recent micro - level research from the eurosystem ’ s competitiveness network, for instance, shows that there is a large and skewed distribution between the most and least productive firms in individual euro area countries. far from being normally distributed, there are a few highly productive firms and many which have low productivity. 19 this implies that a faster and more efficient reallocation across firms and sectors could be quite powerful. european commission ( 2013 ). for more on the effects of “ churning ” on productivity see foster, lucia, john haltiwanger, and chad syverson ( 2008 ),