31. 07. 2017 the european economy and monetary policy inauguration of la granda courses luis m. linde governor mr chairman of the la granda courses, mr rector of the university of oviedo, mr mayor of gozon, mr secretary of the la granda courses, authorities, dear colleagues : let me begin by thanking professor velarde for his invitation to me to participate in the inauguration of the thirty - ninth edition of the now - classic la granda courses. but first i should like to congratulate professor velarde on the menendez pelayo international prize he has recently received and which is just one in a long list of accolades. juan velarde is much more than an eminent academic. he is a true humanist whose work, anchored in different areas of the economy, has always included historical and social concerns where his deep - seated and – i would say – benign liberalism prevails. professor, my warmest congratulations on your menendez pelayo prize. the european economic recovery moving on to the subject of my address today, i should like to share with you some thoughts on the euro area economy and monetary policy. i shall begin by reviewing the key features of the current expansionary phase in the european economies and the fundamental role that monetary policy has played in providing for its take - off. i shall then refer to the main challenges over the course of these difficult years for the european economy and to the need to complete the institutional architecture of the monetary union. after several years ’ moderate growth, the euro area has arrived at a favourable cyclical juncture. on the latest available figures, annual output growth is currently running at almost 2 %. this rate exceeds the european commission ’ s estimates of potential growth, which stand at around 1 %. the soundness of the economic recovery is beginning to be reflected in the more dynamic behaviour of private investment. that breaks with a long period over which companies ’ plans to increase capital were checked by uncertainty over future growth and the need to reduce their high levels of debt. moreover, the recovery is extensive to the entire euro area, since all countries, including greece, have attained positive growth rates. the improvement in economic activity has also enabled unemployment levels to be reduced to rates close to 9 %, down from the levels of 13 % observed at the worst points of the crisis. significantly, this improvement in activity has come about against a difficult political background, marked by the start of the brexit process and the

rise in certain trends that are against free trade and the free circulation of people, freedoms that are the bedrock of the european project, and this without forgetting the permanent threat of terrorism. returning to the positive economic developments, we should not forget two central matters. firstly, these developments are largely the consequence of the extraordinary stimulus received from monetary policy. secondly, monetary union still has a long way to go to achieve sounder governance that will reduce the union ’ s vulnerability to shocks, provide for better coordination of its economic policies and promote the reforms needed to encourage and to be able to sustain long - term growth. 3 / 7 the role of monetary policy i shall first address the role that monetary policy has played and is continuing to play in the recovery. the confluence of the financial and sovereign crises in a european monetary union whose institutional architecture was incomplete meant that the ecb had to assume a pivotal role in the economic policy response. initial measures took the form of a gradual reduction in interest rates and the granting of practically unlimited amounts of liquidity to banking systems, at increasingly longer maturities, with greater flexibility in the attendant collateral policies. in 2012, amid a second recession in the euro area and financial turmoil, the possibility of purchasing the public debt of countries subject to financial pressures was introduced. while this possibility was not actually activated, it contributed to staving off the threat of the single currency breaking up. yet by mid - 2014, and despite the fact that the most acute episodes of the crisis had been overcome, the euro area was immersed in a scenario of low growth and deflation risks in which various external and internal factors were at play. on the external front, the weakness of global growth and the collapse of commodities prices accentuated the downside pressures of producer prices. in the euro area economies, the high unemployment levels and the need to reduce significant debt ratios curbed the expansion of demand, while the fragility of banking systems hampered the transmission of monetary policy measures to the real economy. these factors obliged the ecb to take a different tack and turn to so - called nonconventional measures. firstly, the interest rates on ordinary monetary policy operations were successively cut, placing the deposit facility rate at a negative level of - 0. 4 %, which currently remains in place. secondly, the ecb introduced a new long - term financing facility for the banking system, which was linked to the granting of loans to households and firms. thirdly, in 2015, the ecb took the