benoit cœure : interview with bloomberg edited excerpts from an interview by mr benoit cœure, member of the executive board of the european central bank, with bloomberg, conducted by mr paul gordon, ms jana randow and mr jeff black on 15 january 2014. * * * on money - market conditions : “ it ’ s not new that we ’ ve been worried by possible upward shifts in our money - market curve, in particular caused by external shocks. u. s. tapering is one of them, but there could be others that could make the money - market curve both higher and steeper. it ’ s all a matter of judgment and measure, not black and white. but at some point such developments could interfere with our monetary - policy stance, generally, and with our forward guidance, more specifically. so we want to make sure that monetary conditions, including money - market rates in the euro area, remain appropriate to the situation. our recovery is lagging the recovery in the u. s. that ’ s a fact and that warrants different monetary conditions. ” “ what we ’ ve seen around the end of 2013 was positive. the market was able to absorb a significant drain of liquidity due to year - end factors which we knew would be temporary. it has been managed and addressed by market participants in a very smooth way. we are now close to money - market conditions that were prevailing before the year end. it shows that the money market can be resilient to temporary factors. ” “ at the end of december, we had very tight liquidity and elevated eonia and euribor rates ; that ’ s something we wouldn ’ t like to see as a permanent situation. but the issue was addressed by banks drawing more on our main refinancing operation, the mro. this can serve as an illustration of the usefulness of fixed - rate, full - allotment as a way to provide a liquidity backstop to the market. i would take it also as evidence that markets shouldn ’ t focus too much on the decreasing size of the balance sheet of the ecb, as they sometimes do. as long as we have fixed - rate, full - allotment, that is, at least until july 2015, we will be there to provide the liquidity. that ’ s an important backstop for the market and that worked effectively at the end of last year. ” on the fixed - rate, full - allotment policy

point. see stanley fischer, 1993, the role of macroeconomic factors in growth, journal of monetary economics 32 ( 3 ) : 485 – 512 and stephanie kremer, alexander bick and dieter nautz, 2013, inflation and growth : new evidence from a panel threshold analysis, empirical economics 44 ( 2 ) : 861 – 878. https : / / www. ecb. europa. eu / ecb / legal / pdf / en _ dec _ ecb _ 2015 _ 10 _ f _. sign. pdf. bis central bankers ’ speeches all this ensures that pspp purchases are not being perceived as a circumvention of the monetary financing prohibition. when the central bank makes “ proportionate ” use of its instruments, as i described earlier, this is akin to prudently driving a car : depending on road and weather conditions, we use different tyres, we accelerate or use the brakes, and thus strive to always travel at an optimal speed. the monetary financing prohibition, by contrast, is a traffic rule : a clear stop sign that needs to be obeyed whatever the weather and street conditions. the overt monetary finance of an increase in fiscal deficits to stimulate aggregate demand would legally not be feasible even amid a liquidity trap. conclusion the eurosystem enjoys broad discretion in the choice of its instruments. but we are responsible to use our measures proportionately and to obey the well - defined boundaries set by the legal framework. the flexible choice of instruments was crucial in addressing the headwinds to price stability over recent years : the ecb ’ s monetary policy measures have prevented inflation from falling much further and probably helped avoiding a deflationary spiral. at the same time, there are limits to what central banks like the ecb can achieve. the euro area ’ s recovery is indeed in need of supportive actions from the side of “ economic policy ”. these include structural reforms, a more growth - friendly composition of fiscal policies, while remaining in compliance with the fiscal rules of the stability and growth pact, and the provision of an adequate public infrastructure. all these economic policy measures are vital to increase investment and boost job creation. with other economic policy areas contributing decisively to the recovery, they also help the euro area reap the full benefits from the ecb ’ s monetary policy measures. bis central bankers ’ speeches