that are too low for too long can eventually lead to distortions. in particular : • to a misallocation of resources, which ultimately leads to lower potential growth, • to excessive capital inflows into a number of emerging economies with exchange rate effects and credit risks, • and to reduced incentives for governments, banks, and corporates to adjust. these costs of very low interest rates are real, and they rise over time. of course, these costs have to be weighed against the need for exceptional monetary policy measures in a crisis. these transmission problems bring me to the third dimension : we have to recognise the limits to what monetary policy can achieve in current conditions. the ecb can and has addressed bank funding problems. but there are other barriers holding back bank lending, like heightened risk aversion, a lack of loan demand and insufficient capital. and above all, bank lending will only fully come back when the bank balance sheet repair is completed in all member states. the ecb cannot remove these constraints. this is where our responsibility ends and that of governments or other eu institutions begins. monetary policy is not an all - purpose weapon for any kind of economic illness. how can we overcome the political challenges to adjustment? some of you might react to this that governments are already being asked to do too much. that the costs of adjustment are too high in some countries, and at some point, people will simply not take anymore. this links to my second question : how can we overcome the political challenges to adjustment? bis central bankers ’ speeches let me be clear : every policy - maker in the euro area understands that the process of rebalancing within the euro area is painful. we are deeply concerned by the levels of unemployment we are seeing, in particular for young people. in spain, more than 5 in 10 young people currently cannot find work. in greece, the figure is almost 6 in 10. this is unacceptable – and it is also dangerous. but the political challenge, i believe, comes not from the process of adjustment itself. people can accept a period of hardship if it is necessary. it comes from the belief that there are better alternatives available that are being denied. this is what causes people to reject adjustment, or to blame others at home or abroad for their predicament. this is fine as far as it goes : we are democracies and we need a robust public debate. but it becomes a problem when the debate does not contain all the facts. if politicians

euro is very popular and i think that assessment by the european population is correct. it is a very good invention for europe and i think for all of us in the euro area we should be proud of our common currency. one personal question. you are an academic, how do you see your new position now as chief economist? your position is very important in the ecb. so i think monetary economics, central banking is very closely connected to academia. one of the reasons the bank of finland is having this conference today is to recognise the importance of interaction between central bank officials like myself and university professors and students. this is an area where i ’ ve said in the speech the ecb has to be a learning organisation, we have to learn from our own research, from the university sector, from other central banks. so actually i think this is an area where i feel coming from a university background helps me in my current job. 2 / 2 bis central bankers'speeches