peter praet : reforms and growth in the euro area speech by mr peter praet, member of the executive board of the european central bank, at the panel intervention “ fixing finance ”, the economist ’ s lisbon summit, lisbon, 18 february 2014. * * * it is a great pleasure to be in portugal today, where we are now seeing signs of a stabilisation in the economy. economic activity is recovering, the unemployment rate is falling – although from very high levels – and the current account is in surplus. while it will take years for the scars left by the crisis on the economy and society to fade, confidence has been steadily improving during the recent months. real gdp has been growing at positive rates since the second quarter of 2013 and the most recent information from industrial production, sales, and merchandise trade confirm that this trend is continuing. other euro area countries that have been hit hard by the crisis are also now beginning down the recovery path, while financial markets have started a more benign pricing of sovereign and private credit risk. all this is thanks to the progress that has been made in macroeconomic, structural and financial repair since the onset of the financial crisis. especially since mid - 2010, the start of the sovereign debt crisis, decisive action has been taken at national and european levels. in the first part of my remarks today, i would like to give an overview of the key measures that have been taken in response to the crisis. my focus will be on the role played by the ecb. monetary policy has been critical to averting a more severe economic calamity. but the ecb has also made a wider contribution : we have contributed actively to the debate on the deepening of emu and we have promoted progress toward the euro area ’ s new financial architecture, the banking union. this work of strengthening the euro area is not complete, however. and this is where i would like to focus the second part of my intervention. specifically, i would like to ask : what further steps are needed to embark on a path of robust growth, both in stressed and non - stressed economies? we know that achieving high sustainable growth will be indispensable to bring the unemployment rate back to acceptable levels and to support debt sustainability. but for this to happen, the euro area as a whole will need to persevere in its efforts to reform its economic fabric. the process of structural reform is demanding – and it therefore requires long - term commitment and strong ownership to be

of the monetary policy transmission mechanism. the monetary impulse that the ecb had swiftly introduced in response to the rising risks to price stability was no longer transmitted uniformly throughout the entire euro area. while the ecb had brought its official policy interest rates to historical lows, a number of countries were not in a position to take advantage of monetary accommodation. banks in those countries were tightening credit conditions, running against the monetary policy intentions of the central bank, with negative repercussions on access to finance, in particular for small and mediumsized enterprises. this translated into a drag on the economic recovery. as a result, the singleness of monetary policy was no longer ensured, posing significant challenges to the ecb ’ s policy conduct. fixing the monetary transmission mechanism and the elimination of tail risks the ecb responded forcefully to these challenges with a number of standard and nonstandard monetary policy measures. the main purpose of the non - standard measures was to reduce financial fragmentation and restore an appropriate functioning of its monetary policy across the euro area. in particular, the measures were geared towards removing two sources of risk premia : bank funding risks and redenomination fears. higher funding risks for banks had been a symptom of the crisis ever since liquidity strains had first emerged, almost overnight, in the summer of 2007. they had escalated to systemic proportions after the lehman demise. since the onset of the crisis, the ecb ’ s mainstay response to this problem has been twofold : a policy of unlimited provision of liquidity at fixed interest rates against eligible collateral in the weekly main refinancing and longer - term operations, and an extension of maturity of the liquidity operations from 3 months to up to 3 years. this dual approach to crisis management has been reinforced by two further initiatives. first, collateral rules have been adapted in various stages with a view to broadening the pool of assets that banks could mobilise for eurosystem liquidity provision. this process – which has complemented the fixed - rate - full - allotment decision – has always balanced the need to be supportive to our counterparties with the goal of exercising an appropriate degree of risk control, and to protect our balance sheet. incidentally, portuguese banks have greatly benefited from these measures. for instance, they were able to strengthen collateral buffers by mobilising additional credit claims for the purpose of obtaining eurosystem liquidity – and more effectively than other banking systems in the euro area. bis