benoit cœure : interview in gazeta wyborcza interview with mr benoit cœure, member of the executive board of the european central bank, in gazeta wyborcza, conducted by mr leszek baj on 16 may 2014. * * * gazeta wyborcza : is there a recovery in europe? on the one hand, the growth of the german economy exceeds 2 %. on the other, in several countries gdp is contracting, and some of the larger economies, such as the french, spanish or italian economies, are still lagging behind. benoit cœure : we are definitely looking at a recovery. this is good news. but the latest gdp figures have confirmed that this recovery is moderate and uneven. at the same time, inflation is low. is there a risk of deflation in the euro area? we consider the risk of deflation to be very low. but the rate of inflation – 0. 7 % in the euro area in april – is rather far from our inflation objective consistent with price stability, which is about 2 %. for us at the ecb, there are two key questions at the moment. first, what are the risks to economic growth and is there a risk that this growth won ’ t be sustainable? second, it will be important to know whether this period of low inflation won ’ t be excessively prolonged. these are the elements that we will consider when setting our monetary policy. can the ecb take action then? is it going to support the european economy and try to push inflation up a little? if the uneven pace of economic recovery in the euro area is confirmed and if we see a risk of inflation being too low for too long, we can take action in june. we can act in various ways, depending on the situation. at present, however, it is too early to say what exactly we ’ re going to do. a lot depends on the forthcoming economic data and on our staff growth and inflation projections, which are to be released in june. your room for manoeuvre is limited as interest rates are already very low : the key rate is only 0. 25 %. they are low but they can still go lower. are negative interest rates in the euro area possible? negative rates are one of the instruments available to us. they have been discussed extensively by the governing council. we are technically and legally prepared for such a possibility. and market participants are well aware that

have the desired equilibrating effect depend greatly on the force of the macroeconomic instability that must be confronted. to judge the effectiveness of monetary policy, one must consider what the economy would have looked like in the absence of easing. in this light, given the severity of the shocks that have hit the economy, a better interpretation may well be that recent events validate once again the potency of monetary policy. in my judgment, monetary policy has, in fact, countered some of the negative forces weighing on the economy. residential investment has no doubt been buoyed by policy easing, as lower mortgage rates offset the restraint from declines in employment, smaller gains in income, and lower levels of wealth. lower interest rates have also made it attractive to refinance mortgages to reduce monthly payments, extract some buildup of home equity, and use the proceeds to pay down more - expensive forms of consumer credit, finance additional purchases, or pay for home renovations. businesses, which have been feeling the pinch of lower corporate profits, have benefited from lower interest rates as well. for example, the low rates have facilitated the financing incentives used by automakers to stimulate motor vehicle sales this year. and businesses more generally have taken advantage of lower long - term rates by issuing bonds and paying down commercial paper and bank loans. even so, the current environment of low inflation and concerns about the recovery have raised questions about whether the federal reserve will eventually run out of room to lower interest rates by enough to stimulate the economy. however, i do not think that macroeconomic outcomes will be sufficiently adverse to place us in imminent danger of hitting the so - called zero bound on nominal interest rates. even more remote is the possibility that monetary policy will be unable to prevent deflation. to be sure, many firms, especially in the goods - producing sector, are experiencing declining prices. goods prices have been declining this year, reflecting, in part, productivity improvements. distinct from changes in relative prices, a general deflation would be disturbing both because it would be widely unexpected and because it would undermine the ability of monetary policy to operate through traditional channels. i believe the risks of a general deflation are remote, as i will explain shortly. on that score, measures of overall price inflation are still running in the range of about 1 - 1 / 2 percent at an annual rate for the gdp and core pce price indexes to a bit more than 2 percent for the core consumer price index. however, i also believe that