yves mersch : strengthening the european financial industry amid disruptive global challenges speech by mr yves mersch, member of the executive board of the european central bank, at the european institute of financial regulation ( eifr ), paris, 3 september 2018. * * * europe ’ s financial industry still faces a number of challenges. its continued weak performance, with low price - to - book ratios and meagre profitability, is ample proof of that. some of those challenges – such as high levels of legacy assets, the need for deleveraging and the burden of stricter regulation – are a result of the financial crisis. but even before the financial crisis, the industry was facing pressure on various fronts, and those challenges are still there. in particular, fundamental technological change continues to call established business models into question. today, i will focus on disruptive challenges that are arising in a particular area of business : digital technology. such technology is becoming ever more important in banking and is opening the door to competition from non - banks in core areas such as payments. cascades of complementary innovations have already fundamentally altered the payment landscape, and european banks need to act now if they want to avoid losing out to bigger international players. the euro area has been very successful in providing a top - tier foundation for innovative payment services. however, this foundation has not yet been fully utilised by european players to provide true state of - the - art pan - european services. there is currently a window of opportunity for europe ’ s financial industry to make use of this top - tier infrastructure and the changing patterns in retail payments. but in order to seize these opportunities, it needs to avoid the mistakes of the past. laying the foundations the euro was introduced in 1999, with physical banknotes and coins following in 2002. however, that success was not matched by integration in the market for electronic retail payments in euro, with national solutions remaining disparate and lacking interoperability. while the establishment of target, the real - time gross settlement system for the euro, resulted in a fully integrated money market and wholesale payment market, cross - border retail payments in euro remained expensive, slow and inefficient, with no standardised way of making electronic payments across the euro area. for far too long, huge economies of scale remained unexploited. the ecb played a key role in laying the foundations for such standardised cross - border payments through the establishment of the single euro payments area ( sep

as we have experienced in the past few months, an oil price shock, which is an external shock from the supply side, can exert a significant direct influence on consumer prices. in such a situation, the central bank has to assess whether this direct effect will remain temporary or whether it will translate into a more permanent impact on prices. this depends to a large extent on the ability of central banks to keep inflation expectations low. other indicators of the second pillar, for example the development of labour costs, have a more medium - term content. under the second pillar of the strategy, the production of macroeconomic projections for real gdp growth and inflation enables some of the factors considered to be structured and summarised. the staff of the ecb and the national central banks have already been providing twice - yearly projections to the governing council since the start of monetary union. starting with the december 2000 issue of the ecb monthly bulletin, these projections are now regularly made available to the public alongside other indicators and other forms of analysis underlying the ecb's monetary policy decisions. let me emphasise that the publication of projections reflects the ecb's commitment to openness and transparency in sharing the information and analyses underlying its monetary policy decisions. furthermore, it does not in any way change the ecb's monetary policy strategy. the projections are only one element of the second pillar considered by the governing council. economic projections can only provide a partial summary of the state of the economy. they cannot possibly contain all the information needed to take appropriate policy decisions. in particular, the results do not in themselves reveal the nature of a shock hitting the economy. the appropriate monetary policy to maintain price stability should always depend on the specific circumstances and the nature and magnitude of a threat. for example, the appropriate response to a one - off increase in oil prices may differ from that given to a wage - price spiral, even if both have the same impact on inflation projections. therefore, projections must always be supplemented by economic assessments and a detailed analysis of individual indicators. the ecb's strategy has sometimes been criticised for being rather complex. however, we are convinced that a simple approach would not have been appropriate. neither a purely monetary approach nor a purely non - monetary approach to the analysis of risks to price stability is able to deliver the best possible results for monetary policy. in the beginning, we were sometimes criticised for " not having decided " between a strategy clearly based on a purely monetary objective and one based on pure inflation