again with price stability. there is simply no alternative to this today. the only potential margin for manoeuvre is in the composition of the policy mix, that is, the balance of monetary and fiscal policy. in fact, those advocating a lesser role for monetary policy or a shorter period of monetary expansion necessarily imply a larger role for fiscal policy to raise demand and close the output gap faster. conclusion let me sum up. the global low interest rate environment is a symptom of challenges in the world economy, not its cause. if interest rates are to rise again to sustainably higher levels, it is those bis central bankers ’ speeches underlying causes that need to be addressed. this is true at a global level, and it is true in the euro area. in the euro area, we need expansionary macroeconomic stabilisation policy to support demand, starting of course with monetary policy. that will allow inflation to return to our objective and, in time, for policy interest rates to rise back to their long - term levels. but monetary policy cannot raise long - term real rates. that can only be achieved by structural reforms that elicit a structural rebalancing of saving and investment. higher real returns on savings must come through decisive action on the supply side. in this context, there is also a third type of policy that would support both demand in the short - term and supply in the medium - term, and which is unique to europe. that is committed reform of euro area governance that can remove lingering doubts about its future. there is little doubt that question marks over the future of the euro area, and the european union in general, are contributing to uncertainty for individuals and firms, and that this can hold back consumption and investment. removing this uncertainty will help boost consumption and unleash investment across the continent. there is therefore no doubt in my mind that institutional reform in the european union and of the euro area has genuine economic benefits. for all those who want to see a return to more normal levels of interest rates, this is an essential part of the solution. bis central bankers ’ speeches

of monetary policy in overcoming inflation. that has reduced not just expected inflation, but also the inflation risk premium – the cost levied by lenders to protect them against uncertain price changes. but the decline in nominal yields has also been driven by a fall in real yields, which is the real return generated by the balance of saving and investment in the economy. a temporary period of policy rates being close to zero or even negative in real terms is not unprecedented by any means. over the past decades, however, we have seen long - term yields trending down in real terms as well, independent of the cyclical stance of monetary policy. the drivers behind this have been, among others, rising net savings as ageing populations plan for retirement, relatively less public capital expenditure in a context of high public indebtedness, and a slowdown in productivity growth reducing the profitability of investment. bis central bankers ’ speeches one study finds such factors can account for around 400 basis points of the 450 basis points fall in long - term real interest rates over the past 30 years. 1 the forces at play are fairly intuitive : if there is an excess of saving, then savers are competing with each other to find somebody willing to borrow their funds. that will drive interest rates lower. at the same time, if the economic return on investment has fallen, for instance due to lower productivity growth, then entrepreneurs will only be willing to borrow at commensurately lower rates. on both counts, it is structural factors that have lowered the real return on investment. and since we operate in a global capital market, this has exerted downward pressure on returns on savings everywhere. the role of asian economies in this story has been well - documented, for instance in the “ global savings glut ” thesis. 2 but today the euro area is also a protagonist. we have a current account surplus over 3 % of gdp, and our largest economy, germany, has had a surplus above 5 % of gdp for almost a decade. in the past, countries with such surplus positions may have been able to easily export excess savings towards countries willing to borrow them at higher rates. this would have prevented domestic interest rates from falling, as would otherwise have been the case. and that would have been good for the global economy as saving flowed from ageing, slower growth economies to those with younger demographics and higher investment needs. but in a world where real returns are low everywhere, there is simply not enough demand for capital elsewhere in