cut aid to the country if it didn ’ t accept an aid programme and agree to reforms. he later exerted pressure on the berlusconi government in rome and the socialists in spain. did that not go beyond the ecb ’ s mandate? praet : i won ’ t comment on those letters. however, i would say that, before the outbreak of the financial crisis, we in the euro area invested too little in institutions that would ’ ve been available for emergencies. consequently, institutions dealing with banking crises were too weak. bis central bankers ’ speeches standard : independence is very important for central banks. does the question also have to be put differently in public now : to what extent is a central bank allowed to get involved in politics? praet : i would put it this way : because there were no sufficiently effective crisis management institutions when the crisis erupted, the ecb could not have simply ignored the potential consequences of the banking crisis for price stability. in the light of its mandate, the ecb couldn ’ t accept that. standard : the greek prime minister, alexis tsipras, said this week that it would be a disaster if his country left the euro because the whole world would see that the euro is reversible. how do you see it? praet : let me reiterate what mario draghi said in the ecb press conference a week ago : the governing council of the ecb wants greece to remain a member of the euro. standard : mr praet, what does it feel like to be a thief? praet : a thief? standard : yes. that ’ s how many people in austria would describe you. after all, you and your colleagues at the ecb have, de facto, abolished interest rates. anybody who puts their money in a savings account hardly receives anything now. praet : i ’ m sure that most austrians feel confident that our monetary policy is the appropriate and necessary reaction to the weak economic conditions and the extraordinarily low inflation rates, which are far below our monetary policy objective of below, but close to, 2 %. the low interest rates were an issue for some savers. however, for them, it is not the nominal interest rates which we influence directly that are decisive, but rather the real interest rates – after inflation has been deducted – that count. in the past, there were very long periods in which real interest rates were significantly lower than today, simply

monetary policy ’ s commitment to maintain price stability was bolstered by the institutional changes associated with monetary union ( chart 4 ). the resulting improvements to the growth outlook were further supported by the completion and deepening of the eu single market and the prospect of structural reforms underpinning national competitiveness in this integrated market. in this context, the outlook for income growth in the peripheral countries was widely believed to have been transformed for the better. as a consequence, demand for credit expanded rapidly : households and firms in the periphery sought to borrow, so as to reap the available growth opportunities via investment and enjoy the benefits of prospective wealth gains immediately. bis central bankers ’ speeches this surge in the demand for borrowing was met with a relaxation of the credit supply ( chart 5 ). financing conditions eased significantly as real rates fell. country risk premia diminished, as peripheral countries adopted a credible and stable currency. spreads between government bond yields of euro area countries narrowed to very low levels. financial institutions could borrow more easily abroad, as currency risk diminished. deeper and more integrated capital markets facilitated greater opportunities for cross - country diversification. and greater competition spurred rapid adoption of financial innovations, with securitisation and risk transfer markets playing an important catalytic role in expanding the loan supply. 1 credit growth surged dramatically. no doubt part of the rapid expansion of credit was justified on fundamental grounds. after all, studies by the european commission during the 1980s and 1990s had promised a sizable growth dividend from the single market and monetary union. 2 but, in an environment of large - scale structural change in peripheral economies and their financial systems, distinguishing the impact of improved fundamentals from that of “ bubble - like ” behaviour proved a formidable challenge. indeed, with the considerable benefit of hindsight, there can be little doubt that a significant component of credit growth served to create and nourish financial and economic imbalances that have ultimately proved unsustainable, most notably in the housing market. where mortgages had once been scarce or expensive, they became cheap and readily available. house prices boomed ( chart 6 ). institutional and psychological factors fuelled an asset price bubble in real estate. supported by the dynamism of the real estate market, the peripheral economies grew rapidly. but the growth achieved was not balanced : sectors of the economy associated with the housing boom – construction and financial services – grew disproportionately ( chart 7 ), drawing resources away from other activities, raising concentrations in loan books and