jens weidmann : monetary policy and the architecture of the euro area speech by dr jens weidmann, president of the deutsche bundesbank and chairman of the board of directors of the bank for international settlements, at the deutsche bundesbank's capital city reception, berlin, 29 may 2017. * * * 1. welcome ladies and gentlemen, dear colleagues, it was 131 years ago to the day that the american pharmacist john pemberton published an advertisement for a new drug in the atlanta journal. he had created it to cure himself of a permanent malaise. during the american war of secession, morphine was the drug used to numb pain. it was also prescribed to john pemberton to alleviate the pain from a shoulder injury. and, like many others, he had the problem that once he had starting taking it, he couldn ’ t stop. so he decided to develop a pain killer that didn ’ t contain opiates in an attempt to wean himself off of them. and in 1886 he had done just that. pemberton sold the new drug in his pharmacy and published the advertisement i mentioned earlier. the business man asa griggs candler tried it and realised that it could be more than just a drug. he decided to market it as a beverage. and it ’ s name? coca - cola. today this drink has the reputation of being a real all - round talent. not only can it quench your thirst, but it is reputed to be good for removing stains and rust as well as for fertilising your plants. but coca - cola isn ’ t the only all - rounder : monetary policy is also currently being branded as a cure for assorted ills. as well as its own actual mandate of keeping prices stable, some people seem to be under the impression that it should be used to strengthen growth, lower unemployment, safeguard the financial system and guarantee citizens adequate interest rates. 2. monetary policy the apparent similarities between monetary policy and coca - cola are not confined to their reputation as a “ universal product " ; indeed, they are both widely considered to be a shot in the arm. and that stimulating effect is increasingly coming to the fore in the economic data for the euro area. at 9. 5 %, the unemployment rate is the lowest it has been for eight years. the growth rate of 0. 5 % in the first quarter means that the economy has been expanding for 15 consecutive quarters. for full -

##terity policy. that ’ s because, all told, the euro - area countries have saved a handsome €1, 000 billion or so in interest, based on the 2007 interest rate level. and yet the large member states of france, italy and spain were precisely the ones which spent every last bit of what they saved in interest payments, instead of using it to pay off their debts. bearing this in mind, it is undoubtedly a welcome sign that the new french president has committed to comply with the fiscal rules and announced his intention to roll out additional economic reforms with a view to boosting french growth. a strong french economy will ultimately be a boon for the euro area as a whole. given the subdued price pressures, it is still appropriate, in principle, for monetary policy to be in accommodative mode. but in light of the ongoing economic recovery and a consensus inflation rate forecast of just under 2 % for 2019, it is certainly legitimate to ask when the ecb governing council should set its sights on normalising monetary policy. equally, there are good grounds to have a diversity of views about the right degree of monetary accommodation – all the more so, given that the highly accommodative monetary policy stance is mainly being achieved through the deployment of non - standard instruments. as you are no doubt aware, i take a critical view of the large - scale purchases of government bonds in particular. in a currency union, purchase operations of that kind blur the especially important boundaries between monetary and fiscal policy. eurosystem central banks have now become the euro - area countries ’ biggest creditors. at the end of the day, this can lead to political pressure being exerted on the eurosystem to maintain the very accommodative monetary policy for longer than appropriate from a price stability standpoint. after all, in the context of asset purchases, changes in monetary policy impact more directly on governments ’ funding costs than 2 / 6 bis central bankers'speeches interest rate moves. and that ’ s naturally also problematical in view of the disciplining effect of the capital markets on government finances. hence my view that government bond purchases are an instrument of last resort - one which should mainly be used to fend off deflation. but i ’ ve said in the past that the fears of deflation are overblown, and since then they have become even less of an issue. what is more, looking at the monetary policy stance, there is no disputing that the