has expanded in recent years through numerous programmes ( app, pepp, tltros,.. ) and is now just short of 9 trillion euros. it would not be consistent to keep a very large balance - sheet for too long in order to compress the term premium, whilst at the same time contemplating tightening policy rates above neutral. in addition, rising remuneration on very large excess reserves may alter the transmission of the desired tightening through the bank channel. but obviously, this question is less pressing than the rise of interest rates to neutral, and should come only at a later stage. let me simply put forward at this stage a few preliminary principles that could in my personal view guide the normalisation of our balance sheet, in due time : first, our key interest rate should remain our primary instrument to adjust our monetary policy stance. the size of our balance sheet should be used as a complementary policy tool, whose effects are more difficult to calibrate or finetune. page 11 sur 14 second, we should follow a clear sequencing regarding the various programmes : ( i ) the reimbursement of tltros comes first, and we should avoid any unintended incentives to delay repayments by banks ( ii ) at the other end, pepp should be reinvested until the end of 2024, as stated ( iii ) this leaves inbetween app for which the governing council has said that reinvestment will continue in full until “ well past the date when it started raising the key ecb interest rates ”. here we could start earlier than 2024, maintaining partial reinvestments but at a gradually reduced pace. third, the phasing out of the asset portfolio should be orderly, announced cautiously and well in advance. the ‘ stock effect ’ of asset holdings, which is the key transmission channel, primarily depends upon the expected end - point of the balance sheet normalisation, in terms of both the terminal date and size. fluctuations in the pace of the run - off during the travel to destination do matter less. fourth, as taught by us experience in 2017 - 2019, the pace of the balance sheet reduction should not be left completely on “ automatic pilot ”. starting slowly, assessing markets reaction, and gradually accelerating seems like a sound approach. some flexibility should be kept, in case of sudden liquidity shocks. indeed, the ‘ flow effect ’ may temporarily play a role when market liquidity abruptly dries up. iii. a sensitive co

potential output? the decline in the working age population due to ageing should negatively affect potential output in the long run, through the decrease in the labour force contribution and productivity, all other things being equal. i must stress here that france has a specific advantage : its population is expected to keep on growing fast for some decades thanks to a relatively high fertility rate and a dynamic migration policy ; while our german neighbours for instance are on a decreasing trend. overall, based on european commission projection trends, we estimate that the expected decline of 1. 5 % in the working age population in the european union between 2010 and 2020 could take 1 percentage point off its potential output. but there are ways to offset this evolution. a rise in the participation rates of the young, seniors and women is one of them. pension and labour market reforms implemented in europe are certainly a step in the right direction and should be further pursued. bis central bankers ’ speeches provided that the necessary reforms are implemented and that some changes in working habits are made, we expect that the euro area will be able to cope reasonably well with the expected fall in the population and working age population over the long run, notably in terms of the potential growth rate. nevertheless, ensuring that public spending dynamics remain sustainable in the face of population ageing will continue to be a challenge, given the current debt situation in europe. 2. impact on savings and investment how are savings likely to evolve, both in terms of levels and structure? levels of savings if we follow the consumption smoothing theory, individual savings behavior is driven by the life - cycle : individuals tend to increase their savings as they earn more and then decrease their savings until they actually become negative when they retire and earn less, thus leading to a hump - shaped pattern for their accumulated wealth. consequently, as the proportion of the aged population increases, private savings, as a proportion of income, should decrease. however, this decline may be gradual with the negative impact of ageing on the levels of savings prevailing in the longer run. structure of savings in terms of structure, the fact that elderly people account for an increasing share of the population could change savings habits and have an impact on the demand for certain classes of assets. in particular, given that elderly people are more risk adverse, this could increase the already high demand for low - risk assets. investment the standard production function exhibits two productive inputs : labour and capital. if the labour force tends to decrease or decelerate because of demography, then the