july 2014. bis central bankers ’ speeches it is crucial to note again that this is about macroeconomic policy and not about microeconomic efficiency. it is definitely not about asking our economies to compromise productivity and competitiveness. it is about fostering a broader use in the present of what a productive economy can sustain. the problem is that there is no common european fiscal policy, which is also not foreseen in the treaty. the overall fiscal stance is not discussed and there is no substantive effort to coordinate independent national fiscal policies. many economists have pointed out that this constitutes a significant shortcoming of our monetary union design. economic governance of the monetary union depends only on monetary policy without any concept of a macroeconomic policy mix. this shortcoming provides the rationale for the proposal in the recent five presidents ’ report, that points for the creation of “ an euro area - wide fiscal stabilisation function ” in the longer term. on the way to the “ longer term ”, one could envisage some steps to strengthen the european dimension of fiscal policy in the eurogroup. another initiative could be to expand the financial capacity of the juncker plan in order to really help to jump start investment at the level of the european union. this would be consistent with the existent overall fiscal space. a last important remark is that a more flexible overall fiscal policy does not require changing the existing framework of the stability and growth pact that binds euro area member states. as recently emphasised in a document by the european commission, 7 the pact already envisages a certain degree of flexibility in the way its rules should be applied. one example is the notion of “ structural budget balance ” which member states are obliged to meet. the structural budget balance is, in effect, the budget balance corrected for the effects of the business cycle. the objective of the correction is to allow fiscal policy to play its role in mitigating possible economic shocks. the scope of flexibility within the stability and growth pact should thus be exploited in full. let me conclude. the euro area has been experiencing a protracted period of low inflation and weak economic activity, with two recessions and a very slow recovery since the latter recession. monetary policy has been and will continue to be accommodative, but monetary policy alone cannot respond to all the existing challenges. recent developments only add to the urgency of addressing economic, social and demographic problems of the euro area. no complacency with mass unemployment should be tolerated. outcome legitimacy is,

##down in growth of labour productivity in the euro area has been far more pronounced : the average annual growth rate of labour productivity dropped to 0. 5 percent from 2001 to 2008 and stands at 0. 2 percent since then. demographic factors also matter for the equilibrium real rate. in an ageing society in which a large fraction of the population is saving for retirement, the propensity to save tends to be high and therefore, the rate of return on savings will be low, independently of monetary policy. in this context, it is important to realize that the working - age population of the european union and the working - age population of the euro area has been falling since 2012, and this decline is expected to continue. 3 note that the central bank cannot affect the equilibrium real rate. the equilibrium real rate depends on features such as the households ’ propensity to save, and the central bank cannot influence this. the ecb did not lead to this environment with underlying negative real equilibrium rates. the ecb responded to the decline of the real equilibrium rate by reducing the policy rates, and consequently the real rates declined throughout the economy. had the policy rates been cut less aggressively, real income and inflation would have been even lower today. now think about the implications for retirement saving by an average household, had the ecb reduced rates less aggressively. the real interest rate would have been higher, but the household ’ s income would have been lower. therefore, the amount that the household would have saved for retirement would probably have been smaller – not larger – than with the current, low ecb policy rates. the other point related to savers is that any economic reasoning related to income must be done in real terms. this implies for instance, that in 2007 deposit interest rates in germany see j. williams and t. laubach ( 2014 ), “ measuring the real natural interest rate redux ” federal reserve bank of san francisco working paper no. 2015 – 16, october. the data on working - age population come from the organisation for economic cooperation and development and refer to the ea - 17 and the eu - 27. bis central bankers ’ speeches where little more than 2percent but inflation was higher and so real deposits were negative, i. e., depositors were losing purchasing power. in fact, the bundesbank wrote in 2014, “ as it happens, negative real interest rates have been the norm, rather than the exception, over recent decades ”. 4 recently, deposits have been around