clear that accommodative monetary policy is inimical to balance sheet repair. in many countries low interest rates have in fact helped stabilise debt dynamics via reduced interest rate burdens, and thereby facilitated balance sheet adjustment. the interest spending - to - gdp ratio of euro area governments has declined on average by 0. 4 p. p. of gdp between 2012 and 2014. similarly, the debt burden of households and firms has fallen and reduced bank funding costs have contributed positively to retained earnings, which accelerates the deleveraging of bank balance sheets. all this makes it easier for monetary policy to normalise over the medium - term. second, our monetary policy decisions have not been taken in a vacuum – they have been taken in the context of a broader policy framework that helps mitigate some financial stability concerns. for instance, our recent measures were launched against the backdrop of the comprehensive assessment of bank balance sheets, which included an asset quality review of unprecedented depth and breadth. our monetary policy has therefore been associated with both de - risking and de - leveraging of bank balance sheets, not the opposite. 3 moreover, we are now operating in a new regulatory and supervisory environment, including the creation of a european banking supervisor in the ssm, which has been specifically designed to reduce capture and temper pro - cyclicality. and remember it is banks that historically have been at the centre of the most serious financial crises. while we are monitoring developments closely, at the moment there is little indication that generalised financial imbalances are emerging. as a matter of fact, the two most important indicators of growing financial imbalances – real estate prices and credit growth – show only tentative signs of turning upwards. what this underlines is that following a major financial crisis accommodative monetary policy does not necessarily blur a prudent assessment of risk. on the contrary, it can help produce a more regular pricing of risk, which may have become too high and adverse to productive risk - taking. in sum, while a period of low interest rates will inevitably result in some local misallocation of resources, it does not follow that it has to threaten overall financial stability. this hinges crucially on monetary policy being embedded in a complementary set of supervisory and regulatory policies that create incentives for balance sheet adjustment and responsible financial behaviour. another concern, which has accompanied the fall of interest rates to their effective lower bound and the introduction of unconventional measures, is the distributional consequences of monetary policy. in particular

comes today is that with the slowing of the economy, because of international and geopolitical factors, you get lower growth, then you get also the negative effect of the rate situation on the intermediation margin. that ’ s how the debate has been triggered. now, on the economy you have to see how the things will evolve. now, german bunds are yielding negative ; is that a red flag for the ecb? praet : well, it reflects concerns because basically, our policy – our communication has not changed recently. we have this forward guidance which basically says that the rates are going to stay at the present level until through the end of the year. but the recent increase of bund prices where the rates really fell to zero or even negative rates, reflects concerns in the market and some flight to safety. so they reflect a concern about the economy in general, yes, so it ’ s an indication of uncertainties in the market, yes. are you particularly concerned about germany? praet : i am not particularly concerned about germany. i think balance sheets in general of nfcs 1 / 4 bis central bankers'speeches – non - financial corporations – of households and of the state actually are in good shape. i think this is a country that can absorb a number of shocks. of course on the other side the german economy is very much depending on manufacturing, as we know that manufacturing has been really hit by the international uncertainties related to protectionism and also the slowdown in china and also the uk. one has to say that in the uk there has been a visible slowdown of investments, so the investments have come to a halt. germany of course is a big exporter of investment goods, equipment goods and germany has been hit already today by the brexitrelated uncertainties. so yes, i think the country is resilient. on the other hand, they ’ re exposed to manufacturing. i think they can go through but it ’ s of course a more delicate phase in the business cycle for them. what about italy? praet : italy is another case. it ’ s a different case. italy is weak since a long time so italy has a number of recessions before. they had i would say three recessions. they have a new recession now. i think it ’ s a difficult case where you need really more structural reforms of course, but that ’ s a different sort of situation. talk to me about risks