which many banks – in the future would have to share in losses. until then the financial system took it as a given that euro area government debt was always repaid. that was why government bonds were used as safe collateral in transactions. in deauville that ‘ given ’ was taken away. how hard did that hit? the interbank markets were completely frozen. banks in countries with vulnerable government finances suddenly had problems because the sovereign bonds on their balance sheets – which they had considered safe for decades – suddenly weren ’ t considered safe anymore by the markets. the economy of the euro area then entered a recession and downward pressure on prices occurred. that led to fears of a break - up of the euro. it was due to that shock that in 2012, at the olympic games in london, ecb president mario draghi signalled that the ecb would do'whatever it takes'to save the euro. in the years that followed the ecb has eased its policies considerably, especially with negative rates and the purchase programmes. five years on it doesn ’ t seem as if that policy is really working. i wouldn ’ t be so hasty. we are still working on it. the economy is growing. while the ongoing economic expansion provides confidence that inflation will gradually head to levels in line with our inflation aim, it has yet to translate sufficiently into stronger inflation dynamics. but may i remind you that at the time there was a risk of deflation? a deflation scenario would have meant that prices would fall over a long period and people would have started postponing their spending, so that the whole economy would have ended up in a negative spiral. that risk of deflation is now totally gone. but we are not there yet. you are right on that. why is it taking so long? because we are coming out of an enormous crisis. a banking crisis is one of the worst economic crises there is. especially in a region like europe, where businesses are mainly 2 / 6 bis central bankers'speeches financed by banks rather than through financial markets. and if the creditors and debtors come from different countries too, you also have a lot of political tensions to deal with as well. in my view people don ’ t realise how serious the crisis was. i don ’ t think they realise that the world would have looked totally different – and dramatically worse – if central banks hadn ’ t stepped in so forcefully. the recent strengthening of the euro is making it even more difficult. our communication about the

cheap money for the financial system are here, aren ’ t they? 3 / 6 bis central bankers'speeches i don ’ t deny that the longer central banks pursue this accommodative monetary policy, the greater the risk of bubbles. we are monitoring this but in the euro area as a whole there are no bubbles, although in some cities real estate has become very expensive, for example. but this possible disadvantage is too slight to justify changing our policy. why? if real estate were to become too expensive, you could also address this with other, more specific measures. in belgium, for example, the national bank is responsible for such policies. and furthermore families in certain european cities pay a lot for property, but borrow relatively little in order to do so. so the link with cheap credit is not always equally clear. so yes, there are side effects, but we think they are manageable. is there a bubble forming in the equity markets? if you look at the united states equities appear to be quite expensive. i don ’ t see that in europe. share prices may be rising due to low interest rates, but they are also increasing because the profit prospects of the firms are increasing. don ’ t get me wrong : i am not an equity analyst. i am not saying that european equities are cheap or too expensive. i am just saying that at the moment they do not give rise to any concerns about financial stability in the euro area. that would be the case if, for example, many people were borrowing short - term in order to invest in shares. that would be worrying. another side effect is that savers are not earning any interest anymore. what worries me the most about that is the cultural aspect. parents can no longer explain the time effect of money to their children. they can no longer show them that spending today and spending tomorrow don ’ t happen at the same price. i don ’ t think it is good for children to get the impression that they should spend today rather than tomorrow because the interest rate is negative. the experiences and references this creates are not ok. this worries me, but again : we have to make choices. will low interest rates lead to a zombie economy? will unproductive firms, which should actually go under, survive due to cheap loans? are we delaying the process of creative destruction by providing cheap money? that ’ s a fair question. we are monitoring this. if you take a macroeconomic perspective, you