andreas dombret : quo vadis euro area? challenges facing monetary union speech by dr andreas dombret, member of the executive board of the deutsche bundesbank, to the cdu economic council, berlin, 20 october 2011. * * * introduction ladies and gentlemen, thank you very much for your invitation – i am delighted to be able to speak to you today. for more than four years now, we have been plagued by a crisis that has changed its appearance on a number of occasions. it spread from the us property market to the global financial system, from there to the real economy, leading finally to a sovereign debt crisis in several euro area countries. a sovereign debt crisis – let me emphasise this explicitly – that is a severe test for monetary union, but is not a crisis of the euro. the euro is a stable currency, both internally and externally. politicians are at pains to resolve the crisis, yet a consistent approach has been lacking to date. meanwhile, we are losing valuable time and, given the rapidly rising levels of sovereign debt, politicians ’ scope for action is steadily shrinking. at the same time, uncertainty is growing on the markets around the globe and the confidence of the general public is at risk of becoming lost. this makes it all the more important to find a consistent approach to resolving the crisis in order to restore calm to the markets and to maintain the public ’ s confidence in the single currency. in looking for such a solution approach, one that will stabilise monetary union also in the long term, it is worth taking a brief look at the root causes of the current crisis. the causes of the sovereign debt crisis – a brief overview it is generally known that there were unsound economic developments in a number of euro area member countries. above all, these included excessive lending, asset price bubbles and a loss of competitiveness. these structural shortcomings were the breeding ground for the sovereign debt crisis. however, two fundamental problems are directly responsible for the sovereign debt crisis. first, the institutional framework of monetary union was obviously too weak to prevent excessive fiscal deficits. the stability and growth pact lays down rules that are intended to restrict government deficits and sovereign debt. the political will to enforce these rules was lacking, however. instead, they were circumvented and, in some cases, even actively bent. sovereign debt in the euro area could not be contained as a result. second, there were weaknesses in the financial system. this applies

what the future holds – benefits and limitations of forward guidance speech at the european banking congress 22. 11. 2019 | frankfurt am main | jens weidmann 1 introduction 2 clarifying the reaction function 3 lower for longer 4 achieving price stability in the euro area 5 conclusion 1 introduction ladies and gentlemen, more than 200 years ago, french scientist pierre - simon laplace proposed that the universe was essentially deterministic and, hence, predictable. some being – later called a demon – with sufficient information and calculating power would be able to know all the states of the universe : past, present and future. in today ’ s financial markets, laplace ’ s demon could easily earn a fortune. but despite all the progress in computing, it has never come into existence. still, some people may dream of its possibility. brazilian author paulo coelho once quipped that everything was possible : “ from angels to demons to economists to politicians ”. financial market participants are no demons : they carefully monitor every word uttered by central bankers, because failing to anticipate the central bank ’ s next move could be costly. for a long time, central bankers were reluctant to provide hints on their expected future course of action or communicate openly. a good example is former fed chair, alan greenspan, who once told congress : “ if i seem unduly clear to you, you must have misunderstood what i said ”. [ 3 ] and according to otmar issing, central banking was “ presented as an esoteric art ”. over time, monetary policy has clearly become more of a science and less of an art. economists have formulated reaction functions, which are supposed to summarise how central banks respond to economic conditions. often, relatively simple rules such as a common taylor rule are considered. of course, monetary policymaking is much more complex than that. but just for the sake of argument, i would ask you to think of such a standard rule when it comes to the reaction function. central banks have also increased transparency and extended communication in order to enhance their accountability to the public and make monetary policy more effective. in the wake of the financial crisis, as policy rates approached zero, more and more central banks switched from dipped beam to full beam : using forward guidance, they began to shed light on their reaction function. by indicating that they would withdraw the monetary policy stimuli later than the public expected at the time, central banks attempted to further reduce longer - term interest rates when policy rates had already reached low levels