sabine lautenschlager : stormy times – how is the ecb handling them? speech by ms sabine lautenschlager, member of the executive board of the european central bank, at the 2015 – general assembly of the bavarian economic advisory committee, munich, 23 november 2015. * * * introduction state minister aigner, dr wiesheu, professor zeitler, ladies and gentlemen, let me first of all thank you for inviting me to address you, the leading representatives of the bavarian economy, here in the bavarian capital munich. i am very pleased to have this opportunity to speak to you today. munich is no stranger to stormy times, if you think back to the many serious storms and other adverse weather conditions that have hit the city over the years. in january 2007 hurricane “ kyrill ” took the roof off the hofbrauhaus. only a few months later, in august 2007, storms began brewing on the international financial markets and, with the collapse of lehman brothers in autumn 2008, developed into a full blown storm. what i ’ d like to talk about today is how the european central bank ’ s monetary policy has responded, and continues to respond, to the stormy times we have been experiencing in the euro area and in germany for more than eight years. and in germany in particular, since the beginning of the financial crisis, there has been much discussion about the ecb ’ s monetary policy. no other euro area country has examined each individual monetary policy measure of the ecb as intensively and passionately as germany. this is particularly true for the people of bavaria, known for their clear views and plain speaking. nowhere have the interest rate cuts, purchase programmes and negative ( deposit ) rates been as widely criticised as here in bavaria. as i am also fond of plain speaking, i am happy to come here to the “ den ” of the bavarian lion to discuss the objectives, risks and sideeffects of the ecb ’ s current monetary policy. we are guided by our objective of ensuring price stability. our actions, and in particular our most recent monetary policy instruments, are not without risk. now is an opportune moment to reflect on the pros and cons of the asset purchase programme, or “ quantitative easing ”. in december, the governing council of the ecb will discuss whether further monetary policy measures are required, such as an expansion of the above - mentioned purchase programme. it is therefore time to consider carefully the costs and

take up loans. it is hoped that this investment and consumption will stimulate the economy. this should restore the inflation rate to close to 2 %. there are doubts among the general public in germany about whether the benefits of the purchase programmes outweigh the costs. the criticism is often made that, unlike for our interest rate instrument, there are no reliable empirical data on the effect of the purchases. the benefit of quantitative easing is called into question. in fact, we can identify the first positive effects on financing conditions in the euro area. however, there is uncertainty about how large the effects actually are. it is also pointed out that the potential benefits are also accompanied by risks. because there is no historical comparison for the effects of such a broad programme in the euro area, these risks are, in part, difficult to assess and almost impossible to quantify. the already mentioned side - effects of the low interest rate policy – wrong incentives for governments, financial market stability and distribution effects – are even more acute in the case of quantitative easing. further monetary policy easing? ladies and gentlemen, let me briefly summarise what has been said so far : i have explained to you why i consider the low interest rate policy to be necessary and the risks it creates for financial market stability and the sustainability of fiscal policy. one thing, however, is crucial : there are limits to expansive monetary policy. it buys time, but does not heal the structural causes of the sluggish economic recovery in the euro area and the persistently weak inflation trend. like any medicine, the beneficial effects of monetary policy measures decline with continued use, while the undesirable side - effects increase. and over - use can lead to the result that the patient feels well and no longer works on the causes of the illness. in that case, longterm harm cannot be ruled out. even though less than a year has passed since the decision to launch the quantitative easing programme, new measures are being considered, such as the expansion of the programme. although certain successes of the programme are visible in the financial markets ( for example, in the form of lower interest rates for long - term borrowing ) the hopes of a rapid normalisation of medium - term inflation expectations have not yet been fulfilled. bis central bankers ’ speeches however, this raises two questions. are the inflation and economic outlooks so bad that new measures are needed? and how effective can further monetary policy measures be, in particular an expansion of the programme, in the current