mario draghi : monetary policy in the euro area speech by mr mario draghi, president of the european central bank, at the ecb and its watchers xix conference, organised by the institute for monetary and financial stability, frankfurt am main, 14 march 2018. * * * over the past year, the ecb has progressively recalibrated its asset purchase programme. we have thereby tuned our monetary policy stance to the changing pitch of the recovery – what i have previously termed “ accompanying the recovery ”. 1 during this time, the economy has developed even more strongly than we expected and confidence in the euro area has increased. but it is not because real growth is strong that we can declare the job done. there is a very clear condition for us to bring net asset purchases to an end : we need to see a sustained adjustment in the path of inflation towards our aim, which is a headline inflation rate of below, but close to 2 % over the medium term. thereafter, our monetary policy will have to be calibrated so as to ensure that inflation continues along this path. while we are now more confident than in the past that inflation is on the right track, risks and uncertainties remain. for this reason, even once the outlook becomes less dependent on net asset purchases, monetary policy still needs to be patient, persistent and prudent to guarantee the return of inflation to our aim. developments in the real economy the economy has been growing consistently above current estimates of potential growth, by more than a percentage point last year. all euro area confidence indicators are close to their highest levels since the start of monetary union, even if the latest readings came in slightly below expectations. and there are signs of pent - up demand for both consumption and investment that still needs to be satisfied. for consumption, one useful indicator is the gap between essential purchases, such as food and rent, and non - essential ones, such as electrical goods and holidays. non - essential purchases – which make up around 50 % of household spending in the euro area – tend to be postponed during recessions and then to catch up as the business cycle advances. 2 such purchases are currently only 2 % above their pre - crisis level, compared with 9 % for essential ones. this implies that discretionary household spending still has scope to support the expansion. business investment is also gathering steam as uncertainty in the euro area recedes. it now stands 7 % above its pre - crisis level and surveys point to continued strong investment

components first at the national level and thereafter in cross - border tests. to a large extent, credit institutions have already taken part in these tests. in parallel, as announced a few weeks ago, on 29 june 1999 the ecb together with the national central banks successfully completed the bilateral testing of the escb applications that are necessary for the conduct of monetary policy operations. the testing exercise, together with the parallel remedial actions, has proved that these systems are year 2000 compliant. you may recall that on 15 july 1999 we decided to close target on 31 december 1999 in order to smooth the transition not only for the escb institutions, but also for the other financial institutions. this day can thus be kept free for end - of - year operations and for making full back - ups of the relevant systems. in the area of target, as well as in the area of monetary policy implementation and liquidity management, we are also reviewing our contingency procedures to minimise any potential year 2000 - related impact. it is worth noting that general contingency procedures had already been put in place shortly before the launch of the euro. in addition, we will use an efficient communication infrastructure between the ecb and the national central banks to monitor developments over the year 2000 transition period. the ecb will also share information with the joint year 2000 council and will thereby extend its monitoring capabilities beyond the eurosystem to a global perspective. as far as our monetary policy framework is concerned, we are convinced that it is flexible enough and has built - in mechanisms designed to deal with any level of liquidity demand that might arise in the euro markets. indeed, should any adaptation be advisable, this would be of limited importance and consistent with the overall set - up. we have analysed different scenarios and have come to the conclusion that the eurosystem will be in a position to cope with any potential increase in the demand for liquidity. the stock of banknotes held by national central banks is sufficient to allow for a considerable additional demand for banknotes in circulation and the amount of collateral available in the eurosystem will be sufficient to allow for the corresponding increase in refinancing needs of the banking system. we are therefore confident that the eurosystem will continue its operations smoothly on 3 january 2000 after the century date change. we also reviewed cross - border retail payment services which are essential for the smooth functioning of the single market. we believe that citizens and businesses can only benefit fully from the