yves mersch : on european unity – economic and institutional challenges facing europe speech by mr yves mersch, member of the executive board of the european central bank, discussant prof. hannah scobie, chairman, european economics & financial centre, european economics & financial centre, london, 25 june 2015. * * * ladies and gentlemen, david laidler, the english economist and one of the foremost scholars of monetarism, once stated that “ transparency is an asset that depreciates very rapidly, so communication has to be ongoing, and if it is to enhance accountability, it must be a two - way process as well ”. as a central banker, i fully concur with this assessment. to explain our monetary policy measures – and to defend them when challenged – has become the state of the art in contemporary central banking communication. the exchange with academia, financial market participants and the general public is the litmus test for how we succeed in managing expectations. this holds in particular for times of heightened uncertainty and complexity. that is why i consider seminars like this one an important part of my professional duty – it provides an opportunity to explain the actions of the european central bank ( ecb ), to answer your questions and also to ask some questions of you, in order to benefit from your wealth of experience. the euro area in particular has faced many questions since its inception and – as one of the foremost euro area institutions – the ecb has increasingly been drawn into debates that go beyond a very narrow definition of monetary policy. as a result, a criticism that is sometimes levelled at us is that we spend too much time talking about policies which are outside our mandate – namely structural reforms and euro area governance – and too little time focusing on actually delivering that mandate, i. e. returning inflation from its current low levels back towards below, but close to 2 %. you will not be surprised that i do not share this view. but the fact that it persists in some quarters suggests that there is a need to explain our position more clearly. namely, to underline why the ecb has acted in the way it has in response to low inflation, and why we have insisted on others acting in their domains of responsibility as well, both at national level and european levels. this is what i would like to do in my remarks today. there are three points in particular that i would like to address. implementing large - scale asset purchases the first point relates to our monetary policy

, the government may need to consider additional revenue - raising measures or cuts in spending in the medium term to address spending pressures related to an ageing population ; the need to invest in critical infrastructure such as housing and in meeting climate change targets ; and the potential fall - off in corporate tax revenue. 10 assessing the appropriate level of public debt, which is already highly time - and country - specific, becomes even more complicated when factoring in longer - term considerations. given that many countries face similar challenges, i broaden my horizon beyond ireland once again. the need to transition to a low, or even carbon - free, economic structure will likely require substantial public investment. this is due, in part, to the substantial uncertainty inherent in less - developed green technologies. this could limit private investment, despite increasing awareness of the substantial economic costs of failing to act. mark carney refers to this as “ the tragedy of the horizon ”. 11 the public sector can lead the way with this transition. expenditure and tax policies could help catalyse private investment for the climate transition and promote behavioural change needed to meet climate targets. indeed, this is one of the primary objectives of the next generation eu financial package. to complete the transition, however, we need to reconsider the evaluation of public expenditure performance. the typical benchmark that the rate of return is greater than the cost of servicing the additional debt is often more difficult to achieve for riskier and / or longer - term investments. this can result in perverse incentives to invest in projects that only temporarily boost economic growth rates. one possible approach is to give greater weight to the future when assessing the feasibility of investments with longer horizons. altering the discount rates used for cost - benefit analyses of public investment projects, for example, would provide a more realistic estimate of the future costs of present inaction. of course, it is vital that project planners and the investors financing these projects agree on these costs and benefits. this avoids disappointments that raise the cost of future financing. green bonds and environmental, social and governance ( esg ) investing provide a useful framework for such cooperation. to conclude, judging the appropriate level of government debt is challenging. given the scale of the issues facing us, we need to reconsider traditional measures of evaluating the trade - offs of additional debt. expenditure on clearly - stated and measurable goals that emphasise quality over quantity are more likely to reap the benefits and minimise the costs of additional government debt. while low