which was published in december. the question is that quite a number of swedish households risk building up financial imbalances, which, when corrected, may have painful consequences for individual households and the swedish economy, which in turn may make it difficult to attain the monetary policy targets. swedish housing prices have increased by an average of eight per cent per year over the last 15 years, see figure 3. this can be largely explained by fundamental factors 7, but there is a risk that it relates to over - valuation. this is difficult stuff, and i feel humble in the face of the difficulties in making this type of assessment. parallel to this rise in prices, household indebtedness has increased and is now at an all - time high. there may therefore be a risk that many households have taken loans on the basis of a far too optimistic assessment of the repo rate in the future. see the article “ housing prices in sweden ” in the monetary policy report published in october 2009. bis central bankers ’ speeches figure 3 house prices and households ’ financial liabilities annual percentage change source : statistics sweden. i have said on several occasions that monetary policy must manage risks and that we must also raise our sights beyond the forecast horizon to assess the consequences that today ’ s monetary policy decision may have. it is not the case that i personally believe that the risks associated with household borrowing constitute an immediate threat to the economy, or that housing prices are dramatically overvalued and that a rapid downward adjustment is on the cards. but i do believe that there are risks further ahead if household borrowing continues to increase at a much higher rate than incomes for an additional extended period. and if monetary policy continues to be too expansionary for too long, these risks will increase even further. i also believe that this is roughly the view of the majority of the members of the executive board. it is not possible to exactly determine at what level household borrowing will reach the “ critical point ”. as long as economic activity is favourable, the labour market is improving, incomes and wealth are increasing and the households have confidence in the future everything is hunky - dory. but in a different economic situation with increasing uncertainty on the labour market the behaviour of the households may change ; they may begin to consolidate their balance sheets. this would reduce their consumption and reinforce the downward tendencies in the economy. the higher the debt burden the greater the risk of significant consequences. if housing prices fall in such a situation, households ’ assets will be

like to add that “ medium term ” was not specified in greater detail, and for good reason. the idea was to give us flexibility to assess current developments before making a decision. the positive takeaway from the current projections is that there is no sign of a recession or even of deflation looming in the euro area. • but the forecasts do clearly state the need for continued monetary policy support for euro area inflation to strengthen to a [UNK] degree. • that said, monetary policy is not an exact science. well - considered trade - offs are called for, just like in other policy areas. different tools we can deploy to achieve the goal of “ price stability ” have different costs and benefits. that ’ s why we also need to take stock of the risks and side effects inherent in the exceptionally loose monetary policy with regard to the price stability objective we are seeking to achieve : • there ’ s a risk that the restarted net purchases of government bonds will cause monetary policy to become even more entangled with fiscal policy. • not just that : the persistently low interest rates might tempt investors to take on more risk in financial markets than they are able to sustain. we noted in our financial stability review from last november that vulnerabilities are continuing to build up in the german financial system : • after ten very good years for the economy, there is a risk that future credit risks could be underestimated. • the recoverability of collateral, such as in the real estate financing segment, might be overestimated. • all this is topped off by interest rate risk – both rates that abruptly spike higher and rates that stay very low for very long can be a burden for germany ’ s financial system. where exactly market rates will end up will be dictated primarily by the long - term growth prospects, and thus by factors which lie beyond the reach of monetary policymakers. if the economy is successfully navigated towards a steeper growth path, general interest rates will pick up, too. 2 structural changes ladies and gentlemen, for all the headlines about the current dip in economic activity, we should not lose sight of the longer horizon. looking back, some observers have dubbed the ten years which followed the global financial crisis a “ golden decade ” for the german economy. • today ’ s real per capita gdp is nearly 18 % up on the 2009 figure. • employment numbers have never been this good ; joblessness has dropped to its lowest level since reunification. • corporate insolvency rates are historically