a rise in the exchange rate, all else being equal, implies a tightening of monetary conditions, a downward impact on inflation and potentially a threat to the ongoing recovery. if so, this would call for policy action to maintain the current accommodative stance. this is why we have said that the exchange rate is an increasingly important factor in our assessment of the outlook for price stability. this assessment, however, needs to take in the whole picture. to the extent that the exchange rate is rising because confidence in the euro area is returning and capital inflows are increasing, this leads also to looser financing conditions. while exchange rate appreciation contributes to low inflation in the short run, falling long - term rates support rising inflation over time, insofar as they are passed on into lower bank lending rates and stimulate demand. as a result, the overall policy stance has to take this balance of forces into account. bis central bankers ’ speeches what would be our policy response should this contingency arise? in our view an undue tightening of the policy stance can be addressed through a variety of more conventional measures. these include a further lowering of the interest rate corridor, including a negative deposit rate. they include a further extension of the fixed - rate full allotment procedure, beyond the period currently envisaged. remember that in november 2013 we announced our decision to continue conducting the main refinancing operations ( mros ) as fixed - rate tender procedures, with full allotment, at least until july 2015. finally, if necessary, the measures could include new liquidity injections via our liquidity operations, including longerterm fixed - rate operations. another contingency that would warrant a monetary policy reaction would be further impairments in the transmission of our stance, in particular via the bank lending channel. given the reduction in bank funding costs over the last year and the ongoing clean - up of the banking sector through the comprehensive assessment, our assessment is that bank lending conditions are improving and will continue to improve. 6 yet if this scenario does not materialise, we may have to respond. this could take several forms, including a longer - term refinancing operation targeted towards encouraging bank lending or an abs purchase programme, supported by the necessary regulatory changes aimed at revitalising high quality securitisation in europe. a third contingency would be a worsening of the medium - term outlook for inflation. one cause for this could be by a broad -

jean - claude trichet : award acceptance speech for the grand cross 1st class of the order of merit speech by mr jean - claude trichet, president of the european central bank, at the award of the grand cross 1st class of the order of merit by the president of the federal republic of germany, berlin, 3 april 2008. * * * mr president, dear eva, your excellency, dear friends, i will not attempt to conceal the fact that i am extremely touched : touched to be here with you, mr president, in this magnificent palace of yours ; very touched to have such a prestigious honour bestowed on me by the federal republic of germany ; and touched to find myself surrounded by so many friends with whom we have worked with such energy in deepening and strengthening the friendship that exists both between france and germany and across europe as a whole. mr president, thank you from the bottom of my heart for awarding me this grand cross, which i regard as an honour bestowed on the whole of the executive board and the governing council and all of the staff of the european central bank. mr president, dear horst, being here with you today, i am inevitably reminded of certain shared experiences, events that are now etched firmly in my memory as landmarks in what has been a truly historic period. • my first memory is of the fall of the berlin wall in 1989. you were tasked with organising the reunification of germany as state secretary at the federal ministry of finance. i remember accompanying you in 1990 on a long journey by helicopter over east germany to berlin, during which you explained to me the colossal economic and financial stakes involved in reunification. • my second memory is of the soviet union itself suffering serious financial problems prior to its collapse in 1991. we were in moscow together with our partners, the other g7 state secretaries, to negotiate with the kremlin – which had, by then, lost all of its power and had an “ end of empire ” feel to it – with a view to rescheduling the soviet union ’ s debt. • my third memory is of the decision in europe to enter into intergovernmental negotiations with a view to establishing the single currency. you were negotiating on behalf of germany. we met many times in order to prepare the text of the maastricht treaty. i will always remember a long discussion we had in 1991, when i remember having the impression that we had convinced each other that our respective countries really wanted to go through with this – but