“ striking the right balance in policies and institutions in the euro area ” speech by klaas knot, at econopolis ’ twain talks brussels, 20 september 2017 good morning all, thank you for inviting me here to speak about economic policy in the euro area in the spirit of mark twain. in the instructions to this twain talk, the organizers asked me not to focus too much on socalled “ known knowns ”. this is an easy task for a central banker in current times. in recent years, we have faced many unprecedented policy challenges. and we have had to implement policies that reached well beyond what we considered conventional before the crisis. yet, by doing so, central banks have played an important role in stabilizing the economy. as a consequence, we now face a much improved economic environment. today, i will give you my views on the way forward for the euro area against the backdrop of this improved outlook. acknowledging there are still many unknowns along the way, i will stress that the time has come to rebalance our economic policies. away from non - standard monetary policies to addressing the structural and institutional factors that have been holding back growth. monetary policy during the crisis first, however, let me quickly talk you through how we got to where we are now. since the onset of the financial crisis in 2008, it has not been an easy ride for the euro area. we have seen drastic adjustments in three different macroeconomic sectors : the financial sector has had to repair its balance sheets. the private sector has been in a deleveraging mode for nearly a decade. and governments have also had to make major fiscal adjustments. these deleveraging efforts have been holding back growth. as a result, over the past decade, economic policy in the euro area has mainly involved crisis management and stimulating demand. partly owing to limited fiscal space in many euro area countries, monetary policy at times became the only game in town. even after policy rates had been brought down to zero, central banks have proved creative in finding ways to fight the economic problems caused by the crisis. in this environment, the ecb had to take far - reaching measures. we have substantially lowered our main policy rates, even into negative territory, to stimulate consumption and investment. moreover, several non - standard monetary policy measures were taken to bolster the transmission of low policy rates in the face of persisting market tensions. in 2015 there were serious concerns that the euro area could slide into a deflationary spiral,

and supervisors are all sensitive to attempts at greenwashing. the legal risks associated with greenwashing are significant. and so not living up to a climate commitment may lead to litigation risk that could have significant financial consequences. to illustrate the significance of this risk, the total number of climate change - related court cases worldwide has more than doubled since 2017 and is growing. so the climate - and nature - related risk to which financial firms like yours are exposed may be considerable. the recent good news is that the dutch environmental agency for the first time has indicated that the netherlands seems to be on track to reach its target of a 55 percent decrease in co2 emissions by 2030 – as compared to 1990. if we work really hard. and we won't be done with the netherlands delivering on its climate ambition only. the transition to a carbon - neutral society, in harmony with nature, is, simply put, the world's biggest challenge and should be a top priority around the globe. governments are in the lead here, through regulation, adequate pricing of carbon emissions, and encouraging the financing of innovative, sustainable investment. as a central bank we have supported this transition with research, advice and by bringing key players together to facilitate sustainable finance where we can. as a supervisory authority we also have a responsibility. a responsibility to make sure that financial institutions manage climate - and nature - related risk. because ignoring these risks is no longer compatible with sound risk management. that's where my focus lies today. over the past years we have been active in bringing these risks to your attention. initially by sharing with you what we consider to be good practices and other suggestions for dealing with climate and environmental risks. think of the ecb and dnb guides on climate - related and environmental risks. think of the basel committee principles for the effective management and supervision of climate - related financial 2 / 4 bis - central bankers'speeches risks. and the ecb has urged banks to analyse climate and environmental risks and integrate them into their business models, governance, risk management and disclosures. but despite all efforts i must say i am concerned about the pace and the amount of action in the financial sector. yes, financial institutions have made meaningful progress in accounting for climate and environmental risks. some banks have shown they acknowledge the materiality of climate risks in their portfolios. the same holds for pension funds. and they have made progress in including these risks in their risk management frameworks and processes. also, around 50 banks