which ecb research suggests led to substantial capital misallocation 5. in that context, despite relatively strong headline growth rates in the first decade of emu, the euro area ’ s potential growth rate in fact fell continuously throughout the 2000s. and when the credit cycle eventually turned, the euro area financial sector was prone to fragment along national lines : indeed, whole national banking systems faced conditions equivalent to a “ sudden stop ”. with banks in some of the most vulnerable countries heavily exposed to their own governments, sovereign and bank stresses interacted in the now infamous “ diabolical loop ”. in this way, the banking sector acted more as a shock amplifier rather than a shock absorber. all this exacerbated the negative impact of the balance sheet recession on the economy. elements of a crisis response against that background, dealing with the crisis required two types of policy response. the first was a determined stabilisation policy to offset the effects of the boom - and - bust cycle on demand. the second was a policy of structural reform, to bring about the necessary institutional changes that the early years of emu had failed to elicit. stabilisation can in principle be provided either by monetary policy or fiscal policy. with fiscal policies at best unavailable, however, the burden had to be borne principally by the central bank. that task was further complicated by the fragmentation of the banking sector, which severely disrupted the transmission of our monetary policy across the euro area. in this situation, we necessarily had to produce a resolute monetary policy response – both to compensate for the retrenchment of fiscal support for aggregate demand, and to compensate for the diminished traction of our policy over the economy. this required us to develop several so - called “ non - standard measures ”. these included targeted measures to overcome transmission blockages, such as altering our collateral policy or launching our targeted long - term refinancing operations. and they included, as policy interest rates approached lower bound, deploying large - scale asset purchases to expand the monetary policy stance through our asset purchase programme. those measures were no doubt unprecedented for the ecb. but they should be understood as a necessary reaction to fragmented and depressed environment, where the central bank found itself, in the words of many observers, as “ the only game in town ”. our policy has clearly contributed to stabilising the macroeconomic environment. we have always decisively addressed signs of a de - anchoring of inflation expectations. but stabilisation

that is absolutely clear. our working assumption is that there will be an orderly unwinding, because we trust that homework which has to be done will be done. and we call on all partners to be responsible and consistent. 27 ) one specific imbalance is the housing market bubble. do you think that the situation has improved or worsened in the last few months? answer : it is clear that this is a domain in which there is undoubtedly a lot of diversity in the euro area, as is also the case in the united states. for example, you might have real estate dynamism in florida, whereas in massachusetts things are not going that fast. we have to accept that a very vast continental economy might have different features. that being said, at the aggregated level of the euro area it is clear that we have dynamism in outstanding credit for housing, and dynamic price increases in various available real estate figures, which are a cause of tension and that we are monitoring carefully. 28 ) how is this influencing your monetary policy decisions? answer : i have mentioned several times that, in the governing council ’ s decision - making, we have paid particular attention to real estate developments and we were impressed by the dynamism of the counterpart of the monetary aggregates which is the financing of housing. this was one among many other elements that we took into consideration when we increased rates. 29 ) you mentioned the advices that you got from executive branches and the imf. to follow - up on that, two months ago you were sent a letter by mr juncker asking for more contact with the ecb. you have already said in the press conference that there is enough contact. the executive branches kept asking for rate decreases and now they are asking you to pay attention to the euro exchange rate? do you think that the executive branches pay enough attention and respect to the central bank ’ s independence? answer : first, let me tell you that i have great esteem for jean - claude juncker, who has a very important responsibility in chairing the eurogroup. second, central bank independence is guaranteed by the treaty. in that respect, independence is guaranteed more nowadays than it was before under national legislation. i do not see any dispute on that. i trust that because the entire world, europe and european households know and see that we are independent. we have a very high level of credibility. that, i have to say, explains to a large extent why we are anchoring solidly inflation