an increase in leverage ratios of non - financial corporations. the decline in the value of collateral has led to an increase in risk premia when taking up loans or issuing debt securities. this was shown clearly in the spreads of retail bank lending rates over corresponding market rates and in the increasing risk premia on corporate bond interest rates. the ratio of debt of non - financial corporations to gdp, which increased substantially in the second half of the nineties, only started to stabilise last year. the relatively high debt levels of non - financial corporations, combined with the decline in the value of financial assets, has had adverse consequences on firms'financing conditions via balance sheet effects and therefore on private investment in particular over the past few years. furthermore, corporations have become increasingly reluctant or have found it more difficult to issue equity capital on public stock exchanges. in 2002, total gross issuance of equity only accounted for around 45 % of the annual average for the period 1999 - 2002. in fact, in the second half of 2002, the value of quoted shares issued in the euro area was at its lowest level since the mid - nineties. the slowdown in equity issuance activity in 2001 and 2002 was accompanied by a similar decline in debt securities issuance by non - financial corporations. these declines in securities financing partly point to lower capital demand following the economic slowdown, but the worsening of capital market sentiment in recent years may also have induced companies to increasingly rely on other sources of finance. furthermore, stock market participation of households in the euro area steadily increased in the 1990s. when share prices collapsed, households experienced substantial losses in their financial wealth, bringing the ratio of financial wealth to disposable income back to levels similar to those witnessed at the end of 1997. the costs of the developments in financial markets over the past few years, which were often linked to the “ new economy ”, can also be measured by a critical erosion of trust. examples of accounting malpractice, corporate greed and imprudent stock market valuations have started to appear in increasing numbers, undermining the basic trust and confidence of investors in financial markets. there has been a lot of discussion about whether this unfortunate behaviour has been promoted by d. erasmus, “ the praise of folly ”, ( translated by j. wilson ), great mind series, prometheus books, 1994. see for “ irrational exuberance ” : a. greenspan, “ the challenge of central banking in a democratic society ”

yves mersch : interview with reuters interview with mr yves mersch, member of the executive board of the european central bank, conducted by mr balazs koranyi on 14 march 2018 and published on 16 march 2018. * * * mario draghi took a cautious view on inflation, arguing that economic slack may be bigger than earlier thought. what is the implication of this unexpected slack? the policies we have undertaken, especially since 2014, have been quite successful in getting us closer to our inflation aim. but there are uncertainties about the process of inflation, given factors like globalisation and technological changes. mario draghi raised important questions, which have been discussed among central bankers : what is the non - accelerating inflation rate of unemployment ( nairu ), what is the output gap and how big is the slack? he was exploring the possibility that the degree of slack might be bigger than what you find in classical assessments. we are continuously surprised by the response of the labour market to increasing aggregate demand of a growing economy because rising demand has been leading to continuous positive supply reactions in the labour market. ecb staff estimates that the euro area output gap is closed, and there is already a positive output gap in germany. but there is little inflation. maybe there is another explanation. perhaps we are getting a supply of labour that is pushing the frontier out. in germany we know that migration from central and eastern european countries with relatively comparable skills is making an impact. without such a labour supply reaction, you would have had wage inflation about 1 percentage point higher, and as a consequence, higher inflation. would that mean that the output gap is not yet closed? that is an open question. we are all surprised by the reaction of the labour market to better economic conditions. the increasing participation of women and older people is certainly making an impact. in term of hours worked, we have not yet recovered the level of 2007. but in terms of employment, we have. it seems there is a trend for people to work less or part time. now we are reaching a floor for unemployment but it ’ s not so clear if we ’ re going to see wage increases and mario draghi was opening the conversation on the possibility that there may be more slack in the economy. that still needs to be confirmed but we already have strong evidence of a strong labour supply reaction. the survey of professional forecasters indicates that unemployment will fall to 7. 5 percent in 5 years. it ’ s not clear if that ’ s the