benoit cœure : the euro area's three lines of defence speech by mr benoit cœure, member of the executive board of the european central bank, at the conference " deepening of emu ", ljubljana, 2 february 2018. * * * for a long time, the european central bank has been at the forefront of macroeconomic stabilisation in the euro area. there ’ s broad agreement that without our unprecedented actions, the euro area would have fared far worse. even more people would have lost their jobs, and wages and prices would have stagnated for much longer, or would even have fallen. although our actions were bold and unparalleled, we acted within our mandate, as confirmed by the european court of justice. the establishment of the european stability mechanism, and the progress made in setting up a banking union, have fixed some of the shortcomings in euro area governance and instruments. these steps were important in easing the pressure the crisis has put on the ecb. but many of the institutional failings that caused and perpetuated the crisis remain unresolved. incentives to pursue sound policies remain too weak and stabilisation of shocks too difficult. these are deeprooted issues that cannot be resolved by a few years of above - trend growth. to assume that the current economic expansion will heal all wounds is naive. the euro area needs reform. as the central bank of the euro area, the ecb should not interfere in the details of what is mostly a political debate. but we have a stake in the success of the current discussion. without further reforms, the next crisis may well force the ecb to test the limits of its mandate. depending on the nature of the next crisis, policy action might require taking short - term rates much deeper into negative territory. or it might require purchases of assets that are riskier than public or corporate debt. or it may draw us dangerously close to monetary financing of governments. as things stand today, and given member states ’ still limited fiscal policy space, even a small downturn could create large economic and social costs. it could, once again, test the cohesiveness of the currency union. unless the euro area finds a way to change direction, to reform itself and to regain space for active macroeconomic policy, the same fractures we saw in 2012 could reappear and widen when the next downturn comes. many ideas for reforms are being floated, of course. some are bolder than

that merit to be analysed further. i am delighted we have professor and fed vice - chair richard clarida with us today, to share the federal reserve system ’ s insights of their strategy review. i am likewise delighted to have my close colleague and now ecb chief economist philip lane to discuss the ecb ’ s various instruments of monetary policy, and governor yi gang to provide his take on the global economy and china ’ s monetary policy. ladies and gentlemen, let me conclude my opening remarks with a few words on the future of economic and monetary union, the other subject of today ’ s conference. the sovereign debt crisis revealed serious design problems in emu. substantial reforms were enacted to reinforce economic governance and thus resilience of the eurozone, and its ability to secure financial stability, sustainable growth and opportunities for employment. the european stability mechanism was established. the banking union was launched, and the euro area banking system is already much more resilient. during the economic recovery since 2013, over 11 million new jobs have been created, and the unemployment rate is down from 12 % to around 8 %. but our economic and monetary union is still very much unfinished business. many questions remain. how to complete the banking union? what kind of fiscal capacity will best serve strong, sustained growth? how to make the fiscal rules more counter - cyclical? what kind of safe assets could fly in decision - making, to have liquid financial markets and pave the way for the euro ’ s global role? – we will devote much of the afternoon, including the panel, to discuss these and other challenges of emu. with these words, ladies and gentlemen, let me welcome you again to helsinki and the bank of finland – and wish you a very intensive and productive day, by discussing the often complicated, but at the same time fascinating issues related to the challenges of monetary policy and the future of european monetary union. – thank you! 1 gulan, a., haavio, m. and kilponen, j. ( 2019 ) : can large trade shocks cause crises? the case of the finnish - soviet trade collapse, bank of finland research discussion papers 9 / 2019 2 an empirical analysis of the ecb ’ s past reaction function can be found in maritta paloviita – markus haavio – pirkka jalasjoki – juha kilponen, what does ” below, but close to, two percent mean? assessing the ecb ’