the basis for monetary policy transmission ; but, at the same time, the central bank cannot fulfil its mandate to maintain price stability if the fiscal authority does not fully honour its obligation to pay back its liabilities under all circumstances. to remove the influence of market expectations about future policy rates, it is useful to focus on the term structure in terms of spreads between sovereign bond yields of a given euro area country and benchmark yields – which can be represented by the ois curve or the term structure of german bunds. bis central bankers ’ speeches how to make these apparently conflicting instances compatible? and how to overcome the deadlock? the ecb policy response : outright monetary transactions guidance to answer these questions can be derived from the maastricht treaty and the conceptual apparatus developed in the context of the economic literature on monetary vs. fiscal dominance. these insights have made clear that, from an institutional design perspective, central bank independence and a clear focus on price stability 6 are necessary but not sufficient to ensure that the central bank can provide a regime of low and stable inflation under all circumstances – in the economic jargon, ensuring “ monetary dominance ”. maintaining price stability also requires appropriate fiscal policy. to borrow from leeper ’ s terminology, 7 this means that an “ active ” monetary policy – namely a monetary policy that actively engages in the setting of its policy interest rate instrument independently and in the exclusive pursuit of its objective of price stability – must be accompanied by “ passive ” fiscal policy. a passive fiscal policy means that the fiscal authority must be ready and willing to adjust its policy stance ( revenues and primary spending ) in such a way as to stabilise its debt at any level of the interest rate that the central bank may choose. or, to put it another way, borrowing from woodford ’ s terminology, 8 fiscal policy needs to be “ ricardian ”. 9 although the treaty shows an awareness of the need for consistency between monetary and fiscal policy, in the sense described above, to ensure lasting stability, it did not foresee that fiscal policy could go off track to an extent that requires dedicated institutions and policies able to provide financial assistance, against conditionality, in order to restore sustainability and preserve financial stability in the euro area. the creation of the efsf / esm in charge of providing support to euro area member states in difficulties and enforcing appropriate conditionality has filled this gap. it provides the euro area with a means to restore “ ricardianess ”, thereby

you think that this tool will really support the economy? because the programme comes at the right time. we are seeing the first signs of an improvement in financial conditions in the euro area, which suggests that qe will be able to bear fruit, particularly via the credit channel. the latest indicators of monetary growth show that we are definitely at a turning point and that outstanding credit should start to rise again. for its part, the most recent survey of banks conveyed more optimism as far as demand is concerned. there are also signs of an improvement in consumption as it benefits from conducive structural reforms. another positive development is that we have witnessed a reduction in lending rates to small and medium - sized enterprises, which has been especially noticeable in the most fragile countries ( greece, ireland, italy, portugal and spain ) since september. then there is the decline in the euro and the fact that the fiscal policies of the euro area are becoming more neutral overall. lastly, the fall in the oil price and, of course, our monetary policy decisions themselves will contribute to this positive demand shock. all of this is helpful. so, it could be argued that there was no urgent need to launch this programme? bis central bankers ’ speeches on the contrary, it was imperative to act to prevent inflation expectations from becoming unanchored. it was a distinct possibility, considering the fall in oil prices. by launching qe now, we aim to anchor inflation expectations. but the indicators announcements … of expected inflation have not reacted to the ecb ’ s it ’ s normal for it to take a little time. it ’ s not an exact science, but the context should be favourable, and although i remain cautious, i am confident. everybody should make the most of this opportunity to give growth a further boost, each in his or her field of responsibility. will qe be good for banks? in terms of the lending conditions offered, banks are now lagging slightly behind demand. there are those that claim our financial asset purchase programme will further reduce their margins, while some financial institutions already lament the strong competitive pressure and complain of regulatory burdens. yet, the announcement on qe drove banking sector share prices higher. at the same time, we should be especially mindful that this sector will inevitably benefit from the economic recovery. is there a risk that financial institutions may resist and not sell the bonds they hold at the ecb? banks can realise a capital gain on the sale of their government bonds and, in doing