paradigm shift could jeopardize our independence and our mandate. ultimately, it could lead to a loss of confidence in the value of the money, as observed in the past. in revisiting the interaction between monetary and fiscal policies, there is a need to make a clear distinction between short - run opportunities, corresponding to the current crisis period, and medium - term challenges, which will arise when the economy has fully recovered. in addition, in the euro area, having a single monetary authority and 19 national fiscal authorities creates further challenges in the absence of coordination among member states on their budgets and of a permanent euro area fiscal capacity. this is why risk - sharing across the euro area should not rely only on fiscal mechanisms but also on private markets by completing the capital markets union. in the short term, the risk of fiscal dominance is not an issue. today, monetary and fiscal objectives are fully aligned and require expansionary policies from both sides. fiscal policy can help monetary policy to achieve its inflation objective by boosting demand. firms and households are encouraged to borrow in such an environment, which allows them to benefit fully from the monetary stimulus. monetary policy can also render fiscal policy more effective. the dominant view is indeed that fiscal policy becomes more effective at the effective lower bound ( elb ) because monetary policy is less likely to react to offset its effects. this is because either the desired policy rate is sufficiently below the elb or the central bank has committed to keep 3 / 5 bis central bankers'speeches interest rates unchanged through forward guidance. however, conflicts of objectives between fiscal and monetary policies may arise in the future. the ongoing accumulation of public debt and the large expansion of central banks ’ balance sheets increase the likelihood of such conflicts. on the one hand, large fiscal stimuli for too long may lead to concerns about debt sustainability and, via the expectation of future fiscal tightening, offsetting the favorable effects on output and inflation. on the other hand, central banks should keep the risks taken in their balance sheets under control to avoid threatening their own independence. indeed, low inflation today is not a guarantee that it will remain low forever. they must keep a sound balance sheet with adequate capital in order to keep full control of their monetary stance all along the road. the key question is then how to reconcile the benefits of a mutual reinforcement of monetary policy and fiscal policy in the short - term with the challenges of keeping inflation under control and public debt to sustainable levels in the long - term. there is no magic

christian noyer : the power of monetary policy speech by mr christian noyer, governor of the bank of france and chairman of the board of directors of the bank for international settlements, at the paris europlace financial forum, tokyo, 25 november 2014. * * * two weeks ago, i had the privilege to chair in paris our triennial banque de france symposium. governor kuroda made us the great favor to participate. at that symposium, one speaker remarked that, during the financial crisis, central banks in most countries had been ( quote ) “ the only game in town ” ( end quote ). and he went on wondering whether this would still be the case in the future. this observation captures the essence of my remarks today. i would like to talk about the power of monetary policy in the current – low inflation – environment. central banks have been all powerful and decisive in fighting off the biggest financial crisis of the last 70 years. and they succeeded in avoiding a prolonged recession and the collapse of our financial system. today, however, they are facing a different challenge. growth has been disappointing in many parts of the world and forecasts have been constantly revised downward. even more worrisome for central banks, inflation has persistently undershot our definition of price stability. for the euro area, it has declined from 2. 5 % in 2012 to 0. 3 % in annual terms, as of last september. this drop in inflation has occurred despite the most accommodating monetary conditions ever witnessed in europe. so one may ask whether monetary policy will be as successful in the post crisis era as it has been during the crisis ; and whether it will manage to avoid the perils of persistently low inflation. i will concentrate my remarks on the euro area, taking advantage of being in tokyo to draw some lessons from the japanese experience, and, i should say in the presence of deputy governor nakaso, from the deep expertise of the bank of japan. one may harbor doubts about the power of monetary policy for two reasons. the transmission mechanism may be impaired ; and the equilibrium interest rate may be so low ( or even negative ) that it becomes impossible to reach. the first point speaks for itself. the eurozone has suffered from acute segmentation and severe impairment in its money and credit markets. those failures have been addressed aggressively through a set of measures i will detail in a moment. results have been significant. the so - called target 2 balances have been reduced by half