bonds – will you continue to reinvest them? the fed has already started to shrink its balance sheet. we are reinvesting them and have so far given no indication of wanting to stop. all will depend on how the economic climate develops. in germany there ’ s a slight possibility of a “ grand ” coalition being formed, which could herald a franco - german commitment to reforming the euro area. what do you make of that? there are many ideas around and it ’ s the task of governments to decide. technically, the two most important things, i think, are the completion of the banking union with the deposit insurance scheme, and the creation of an ad hoc fund with a stabilising role, if need be, to help manage growth. i have not heard any convincing arguments in favour of transforming the european stability mechanism ( esm ) into a european monetary fund. 2 / 5 bis central bankers'speeches would you keep it as it is? yes. it has its tasks ; it performs them well. the european commission has its role as guardian of the treaties and it monitors the countries ’ adjustment programmes. and one of the major things in recent years has been the huge adjustments in the countries which ended up under most pressure during the crisis. all these countries are now growing. you mean the so - called “ peripherals ” which have asked for assistance in exchange for adjustments? exactly, these countries, except for spain, which is recovering, have deficits below 3 % and have primary and current account surpluses. the account and economic adjustments have been extremely significant, and have been the result of improvement and reform programmes. the imf and the ecb agree that the current account surplus of the countries that have followed an adjustment programme is structural and not the result of reduced import quotas. so if there have been improvements, why change the role of the esm? so you are against the idea that the esm might become a budgetary control authority, as some have suggested? many ideas are being discussed ; the point i am making is that the european commission had responsibility for the adjustments in these countries, and it worked. so it was right to give those countries flexibility on their budgets to create room to undertake reforms? the point is that everyone is now full of praise for the efforts undertaken in those countries that are or were subject to an adjustment programme. that is what counts. so i don ’ t see any reason to adjust the institutional framework and create a new body,

particular, credit remained subdued. annual growth in m3 continued to be broadly stable at 2. 3 % in august, compared with 2. 2 % in july. annual growth in m1 remained strong but decreased to 6. 8 % in august, from 7. 1 % in july. net capital inflows into the euro area continued to be the main factor supporting annual m3 growth, while the annual rate of change of loans to the private sector remained weak. the annual growth rate of loans to households ( adjusted for loan sales and securitisation ) stood at 0. 4 % in august, broadly unchanged since the turn of the year. the annual rate of change of loans to non - financial corporations ( adjusted for loan sales and securitisation ) was – 2. 9 % in august, compared with – 2. 8 % in july. weak loan dynamics for non - financial corporations continue to reflect primarily their lagged relationship with the business cycle, credit risk and the ongoing adjustment of financial and non - financial sector balance sheets. since the summer of 2012 substantial progress has been made in improving the funding situation of banks and, in particular, in strengthening the domestic deposit base in a number of stressed countries. in order to ensure an adequate transmission of monetary policy to the financing conditions in euro area countries, it is essential that the fragmentation of euro area credit markets declines further and that the resilience of banks is strengthened where needed. further decisive steps to establish a banking union will help to accomplish this objective. to sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. a cross - check with the signals from the monetary analysis confirms this picture. as regards fiscal policies, euro area countries should not unravel their efforts to reduce deficits and put high government debt ratios on a downward path. the draft budgetary plans that countries will now deliver for the first time under the “ two - pack ” regulations need to provide for sufficiently far - reaching measures to achieve the fiscal targets for 2014. governments must also decisively strengthen efforts to implement the needed structural reforms in product and labour markets. these reforms are required not only to help countries to regain competitiveness and to rebalance within the euro area, but also to create more flexible and dynamic economies that generate sustainable economic growth and employment. we are now at your disposal for questions. bis central bankers ’ speeches