gertrude tumpel - gugerell : the euro area ’ s economic outlook intervention by ms gertrude tumpel - gugerell, member of the executive board of the european central bank, during a panel discussion on europe ’ s financial forecast at the bloomberg businessweek european leadership forum, london, 23 november 2010. * * * ladies and gentlemen, it is a pleasure to attend this year ’ s bloomberg businessweek european leadership forum. bloomberg ’ s and europe ’ s economy have at least one thing in common. coincidently, bloomberg was founded in 1981 and so was the ecu, the european currency unit, one of the forefathers of our common currency, the euro. so let me take the opportunity, today, to speak about the state of the euro area economy. when assessing the euro area economic outlook, three criteria are of particular relevance in the current juncture. first, how much does the euro area banking sector still rely on central bank liquidity support measures? and second, can we be confident that private sector domestic demand can contribute to a sustained economic recovery? and third, what are the implications for price stability against this background? in what i will present to you i will argue that there are some good news when assessing these two questions. first, money market activity in the euro area improved which has allowed the ecb to withdraw some of the liquidity support. second, household incomes and non - financial corporations ’ balance sheets are improving supporting a positive outlook on euro area growth, also against the background of further consolidation efforts of euro area governments. and third, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households, also as inflation expectations remain firmly anchored in line with our aim of keeping inflation rates below, but close to, 2 % over the medium term. so let me assess the euro area financial and economic outlook in a bit more detail. part i : assessing the euro area financial and economic outlook reduction of central bank intermediation … the size of refinancing operations has decreased considerably since 30 june 2010, from €881 billion on that date to €510 billion in mid - november. the phasing - out of non - standard measures continued in the third quarter of 2010, and is still continuing in the fourth quarter, as all maturing one - year and six - month longer - term refinancing operations ( ltros ) are not being renewed. … as money markets

. 45. even as branch authorization has been substantially liberalized, several challenges remain. the biggest challenge, as always in india, is in the numbers. in 1969 when banks were nationalized, there were 8321 branches with an average population per branch office ( appbo ) of about 64000. that has improved to 97180 branches with an appbo of about 13000 by march 2012. but in a country with over 600, 000 villages, these numbers, while both impressive and commendable, serve to highlight what remains to be done. in the first index of financial inclusion prepared by the indian council for research on international economic relations ( icrier ) to determine the extent of reach of banking services in 100 countries of the world, india has been placed at the 50th spot, below china, kenya and morocco. 46. the second big challenge lies in moving beyond numbers and looking at how we actually make a difference. there is a disappointingly large number of cases of bank branches with low customer footfalls ; bcs who drift off after a few months and “ no frills accounts ” which remain largely inoperative. this is where issues of perception come in. unless banks are convinced that reaching out to the common man is not just a forced regulatory imperative but a potential business opportunity, the numbers will remain without life. the reserve bank looks forward to competition among banks to develop business models for such small, low staff and low cost branches. conclusion 47. i have so far covered five specific areas : ( i ) microfinance ; ( ii ) priority sector lending ; ( iii ) lending interest rate system ; ( iv ) savings deposit interest rate ; and ( v ) liberalization of the branch authorization policy, to illustrate how the reserve bank ’ s regulatory and supervisory policies are guided by the belief that financial inclusion is a necessary prerequisite for inclusive growth. 48. what financial inclusion requires most of all is efficient and sympathetic customer service by banks. no amount of regulation, rules, policies and plans will deliver sustainable results unless banks serve their customers with efficiency, empathy and courtesy. 49. many of you are aware of the reserve bank ’ s outreach programme which is an effort to connect with people in the villages. i know that many commercial banks, including iob, have their own versions of the outreach programmes. these programmes give us all a bis central bankers ’ speeches first hand exposure to the needs and aspirations of less privileged people and also an understanding of their problems and concerns.