the euro area with persistently high unemployment, which curbs wage rises and weakens demand and price growth. moreover, structural factors, such as the ageing population, are also likely to exert downward pressure on the “ natural ” – or “ wicksellian ” – interest rate. this rate can be defined as the interest rate consistent with the full employment of the factors of production. in this case, in order to achieve the right balance between savings and investment, markets rates must come down too. in normal times, central banks cut their key rates, and this passes through to the yield curve. however, in order to deal with the financial crisis, the ecb like other central banks have brought their key interest rates to very low levels, around zero. this means that our traditional monetary policy tools had to be supplemented by other instruments, known as non - standard instruments, in order to reach our prices stability objective. i will return to this point later. b ) what is more with regard to the challenges we currently face, these deflationary pressures create the risk of an unanchoring of expectations, which would make it harder for us to achieve our 2 % target again. indeed, if inflation stayed too low for too long, economic agents may revise downwards their inflation expectations, which would create second round effects. lower inflation expectations influence economic agents ’ price - and wage - setting behaviour, which in turn keeps inflation low. it can even raise the risk of deflation, defined as a cumulative process of falling prices, including those of assets, or even wages and production, as the world economy experienced in the 1930s or japan partially underwent in the 1990s. such deflationary dynamics are not at play today. but this risk is the bis central bankers ’ speeches reason why our inflation target is symmetrical. we consider too low inflation to be just as costly as too high inflation. and, therefore, it is more risky for central banks to act too late than too early. since the start of the year, we have observed that market - based measures of inflation expectations have fallen. nevertheless, the latest forecasts provided by the ecb continue to point to a gradual rise in inflation over the coming years : 0. 1 % in 2016, 1. 3 % in 2017 and 1. 6 % in 2018. c ) some argue that these challenges mean that the eurosystem can no longer achieve its price stability mandate. i don ’ t think so. current challenges do not call

created a deep - seated scepticism. the current balance is very fragile and, in this highly volatile environment, any major deviation from the required fiscal path would probably be punished with a sharp rise in interest rates. fifth assertion : within the banks, we need to separate those activities which serve to finance the economy from those that are purely speculative ; and prevent customer deposits or central bank refinancing from being used to fuel dangerous behaviour. the idea bis central bankers ’ speeches in itself is a sound one. unfortunately, it has often translated into an absurd cleavage between commercial banks ( by that i mean lending banks ) and investment banks. in fact, it is not possible to make a clear distinction between “ good ” lending and “ evil ” markets. what is important is that all participants in the real economy find the right combination of financing to suit their needs. and for that, nothing can rival the universal banking model which provides a one - stop shop for a full range of banking products. iii / - i ’ d like to look now at my own proposals for how we can reduce the uncertainty surrounding the financial sector. i have six proposals : 1 - first, we need to encourage players to take risks, but only the “ good ” risks ; in other words we need to restore and repair the mechanisms for supplying credit to the economy, and use the full range of tools at our disposal to achieve this. we must stop trying to draw a line between banking and market activities ; we need both, because they complement each other. if banks stop all trading activities, liquidity could evaporate from the debt markets. similarly, europe needs to create a healthy securitisation market which eliminates the errors of the past. this is the best way to separate lending from sovereign and bank risks, and revive cross - border transactions within the euro area, putting an end to the fragmentation of the financial and monetary markets. 2 - second, we need to eliminate the uncertainty created by public policies, which is a major obstacle to long - term investment. we are currently in a phase of transition following the crisis, but are also experiencing an even deeper transformation in our structures of production, notably in energy. it is vital that public policies are clear, stable, free of contingencies, and unequivocally long - term in perspective. 3 - third, we need to restore our fiscal credibility ; this is the only thing that will enable us to withstand future shocks. major progress has been