to objective debate. and this kind of aggressive language is not limited to the media. politicians of various parties have referred to mario draghi as “ the gravedigger of german savers ” or “ the speculators ’ accomplice ”, who has “ continuously expropriated ” savers ( slide 7 ). this public reaction far exceeds the usual degree of criticism about economic policy decisions. and it seems that negative interest rates are the chief cause of these deep feelings of discontent. indeed, negative interest rates are a relatively recent addition to the central banking toolbox ( slide 8 ). the ecb first took the deposit rate for banks into negative territory in june 2014 and subsequently lowered it to - 0. 5 % in several steps. structural factors are the main driver of interest rates against this background, the question arises as to why the ecb needs to make use of negative rates, and why interest rates were much higher in the past? if inflation needs to be pushed up, central banks need to bring the real interest rate – that is, the nominal interest rate adjusted for inflation – below what is called the “ real equilibrium interest rate ” – the rate at which all factors of production are at full capacity and inflation is stable. the level of the real equilibrium rate is determined by a number of structural factors, such as a country ’ s demographic situation or capacity to innovate. the real equilibrium interest rate cannot be directly observed and instead has to be estimated. and almost all estimation methods show that the real equilibrium interest rate in the euro area has fallen markedly over the past 20 years ( slide 10 ). indeed, many estimates have even been showing negative values in recent years. this suggests that the supply of capital is matched with relatively low demand – in other words that the desire to save is meeting with a comparatively low propensity to invest. germany offers a prime example of this savings surplus. the vast and enduring current account surplus means that in germany much more is being saved than invested. the central bank, however, steers the nominal rate of interest – that is the sum of the real interest rate and expected future inflation. if the real equilibrium interest rate and inflation are both strongly positive, the central bank has considerable scope to stimulate the economy by cutting rates. but if the real equilibrium rate is close to zero or even negative, that scope is greatly reduced because monetary policy is constrained by the zero lower bound. and so you can see that low equilibrium interest rates create problems for

in a nutshell, it is evidence that the euro area financial crisis has not eroded trust in the euro as a currency. however, central banks are currently facing important challenges in using information from markets for inflation protection to support monetary policy decisions ( see slide 7 ). during the crisis, and especially after the bankruptcy of lehman brothers, inflation - linked markets were characterised by high volatility and low market liquidity, which made it very difficult for policy - makers to infer signals about the level of inflation expectations, as perceived by market participants. also, they have not escaped the trend towards fragmentation which has been a common feature of euro area capital markets throughout this crisis. during the euro area sovereign bond market crisis, and especially in the second half of 2011, country - specific developments were increasingly apparent. in particular, the rising yield spread between french and german bonds meant that the euro area real yield curve estimated on french and german bonds became biased. the technical solution was to split the estimation of the real yield curve into the country - specific yield curves before aggregating back to a euro area real yield curve. i believe our colleagues will present this new approach in more detail during the workshop. finally, regarding the markets for inflation options, we still need to understand better to what extent we can trust the signals extracted from these markets as being accurate information on the inflation and deflation tail risks perceived by investors. we need to understand the impact of particularly large players in the options market on shorter - term price developments and need to find ways to assess the maturity of these markets. our goal should be to be able to routinely extract probability density functions for inflation expectations based on a robust methodology, as we already do for short - term interest rates or stock indices. this would be particularly useful to inform our policy making process in a world where risk management plays a key role in policy decisions. having briefly sketched out our analysis and concerns, i would like to stress that the ecb has a strong interest in the developments in markets for inflation protection. they provide us with tools for monitoring inflation expectations in the euro area for various horizons at a high frequency. such tools are unique and that is why we need to make sure that we interpret the information from inflation markets correctly and understand the broader context of the observed developments. i trust this workshop will give you a good opportunity to reflect on these issues. i would like to wish you some interesting and productive discussions. bis central bankers ’ speeches bis central bankers ’ speeches bis central