hold enormous sway. it is not for nothing that we have a whole system of central banks in europe, with the european central bank at its core, that engages in setting policy rates. interest rate changes have a direct impact on economies. however, that ’ s a fact that ’ s only dawning on many people now that interest rates have been unusually low for so long. in germany, the media coverage of the low interest rates tends to be negative. so, in terms of the title of my speech, the general public appears to view low interest rates more as a curse than a blessing. let me make one thing clear from the get - go : i see this as a more nuanced matter. but first things first. i would like to address, in turn, three key groups that are affected by the low interest rates : banks, consumers, and the economy as a whole. furthermore, i would like to take a crack at answering the question of how long this phase of low interest rates will keep going on. 1 / 7 bis central bankers'speeches 2. effects of low interest rates on banks and savings banks let ’ s begin with the effects of the low interest rates – to be more precise, their impact on banks and savings banks. by now, word will have surely got around that representatives of financial institutions are not very happy with the current low - interest - rate environment. yet at first glance, the conditions in which the banks are operating would appear to be perfect. after all, the european central bank ( ecb ) is – in return for the appropriate collateral – lending them unlimited amounts of money. the cost : 0 %. and if the banks lend heavily to enterprises and households as well, they even receive a premium on the funds borrowed from the ecb. just to remind you, up until a few years ago, policy rates were much higher, and far tighter restrictions were placed on money borrowed from the ecb. the problem for banks and savings banks is now quite similar to the one facing my colleague ’ s aunt : where to put their hard - earned money if they still want a decent return. 2. 1 interest - driven business models no longer fit for purpose this is, to all intents and purposes, a matter of life or death. after all, credit institutions ’ business models – and hence their earnings, too – are heavily reliant on interest income, especially when it comes to small and medium - sized institutions. this is, to a

banking sector in the functioning of the economy. the restructuring of the banking sector is the top policy priority, and progress in this domain is the key to economic recovery. given the challenges which lie ahead, banks should take appropriate measures to strengthen their capital base and, where necessary, take full advantage of government support and in particular recapitalisation measures. as regards fiscal policy response, let me first say that the merits of discretionary measures are less obvious than those safeguarding the functioning of the financial system. in principle, automatic stabilisers should represent the first line of defence during an economic downturn. however, under exceptional circumstances and if a country has room for manoeuvre, fiscal policy can contribute to macroeconomic stability also through discretionary actions. when assessing the merits of the different measures taken, we should differentiate between measures such as ( 1 ) expenditure increases and ( 2 ) tax cuts, and ( 3 ) measures like guarantees and loan subsidies to specific sectors of the economy. in fact, although support for credit - constrained firms could ease their access to credit and the restructuring of their balance sheets, it may also lead to an inefficient allocation of capital and the propping up of companies that would otherwise fail. moreover, this type of support would be difficult to reverse and might act as a brake on long - term growth. turning to the effectiveness of fiscal measures to stimulate demand ( i. e. spending increases and tax cuts ), it crucially depends on the behaviour of economic agents, and that in turn also affects the size of the fiscal multipliers ( i. e. the gdp effect of fiscal stimulus measures ). the expectation that higher government spending today may lead to higher taxation in the future would induce both households and firms to save rather spend any additional income, thus reducing the size of the fiscal multiplier. therefore, the public perception of overall fiscal sustainability plays an important role in the impact of the respective national fiscal stimuli. the effectiveness of fiscal stimulus measures also depends on the extent to which private investors respond positively to tax policy, with their investments likely to be more responsive in the case of “ temporary ” tax breaks, as they provide an incentive to bring forward future investment plans. at the same time, there is a risk that fiscal stimulus measures may crowd out private investment by putting upward pressure on interest rates. as regards the size of the fiscal multiplier, empirical studies ( e. g. perotti ( 2002 ), blanchard and perotti