parties involved will be able to negotiate an economic partnership that underscores the close political amity between the uk and the eu. with a view to future economic relations, we must work hard to reach a deal that, on the one hand, minimises frictions in trade and supply chains. in that context, i also think that a substantial transition period is in the interest of both economies. on the other hand, however, this deal must also give the uk and the euthe freedom to develop their own agendas in economic policy and rule - setting – this would ensure the possibility of institutional diversity, where each society can develop rules according to its own specific, historically grown circumstances and current preferences. 5. euro area crisis and reform mastering brexit is probably the biggest mid - term challenge facing the european economy, and we all need to take a pragmatic approach. much is at stake. yet as is always the case in life, problems and challenges never come alone, but in groups, or at least in pairs. the second big economic challenge we need to focus our attention on in 2018 is the reform of the euro area. this is also emphasised by the weight that this topic has in the current negotiations to build a new government coalition in germany. i will come back to this in a moment. the euro area will remain vulnerable as long as one fundamental stumbling block remains in place : its asymmetric institutional design. member states surrendered sovereignty in monetary policy matters to the ecb on the one hand, but retained ownership of their fiscal and economic policies on the other. this creates two major problems : first, a common monetary policy for economies that are at different developmental stages – compare france and greece, for instance – and at different stages of the business cycle. second, the moral hazard that arises when governments, firms and households borrow too much to take advantage of lowered interest rates as a result of averaging in the currency union. we need answers to both these problems. for the economic convergence of the euro area will take time. currently, the potential german coalition partners are debating quite sensible approaches on how to foster social inclusion, limit a race to the bottom in tax policies, and foster the convergence of the euro area economies. it ’ s too early to judge these positions. the second problem – excessive debt, and high borrowing by governments in particular – could, in theory, be solved much more easily. however, the necessary political reforms have seen little progress so far. but here

. in the market, the supply of reserves declined, while demand spiked, especially from riskier banks. in response, the eurosystem moved from a system with competitive bidding for a limited supply of reserves in the main refinancing operations to a system with fixed rates and full allotment. when market funding was not available or too costly, banks with a deficit of reserves now borrowed additional amounts from the eurosystem. and banks with a surplus of reserves would place them in our deposit facility. this created sizeable amounts of excess liquidity. [ 11 ] and because of the excess liquidity, short - term interest rates declined well below the mro ( main refinancing operation ) rate. five years later, faced with a prolonged period of inflation below target, the eurosystem launched a first series of targeted longer - term refinancing operations ( tltros ( targeted longer - term refinancing operations ) ) in 2014. these offered banks long - term funding at attractive conditions. to give you an order of magnitude here : financing volumes rose from up to 425 billion euro provided via tltro ( targeted longer - term refinancing operations ) i to more than 2 trillion euro pro ‐ vided via tltro ( targeted longer - term refinancing operations ) iii – equal to about 15 % of euro area gdp ( gross domestic product ). alongside the tltros ( targeted longer - term refinancing operations ), the eurosystem also started to buy significantly more debt securities with the launch of the asset purchase programme ( app ( asset purchase programme ) ) in 2014. securities holdings for monetary policy pur ‐ poses rose from around 195 billion euro at the end of september 2014 to almost 5 trillion euro, equivalent to almost 40 % of euro area gdp ( gross domestic product ), in summer 2022. both measures added substantially to the excess liquidity and caused short - term inter ‐ est rates to decline towards the level of the deposit facility rate. over time, it was per ‐ ceived that the eurosystem had moved gradually from a corridor system to a de facto floor system. 3 the eurosystem ’ s new operational framework what was our main reason for starting to review our current framework? the eurosystem discontinued reinvestments under the app ( asset purchase programme ) in july 2023. by the second half of 2024, we intend to start running off the pandemic emergency