peter praet : interview in handelsblatt interview with mr peter praet, member of the executive board of the european central bank, in handelsblatt, conducted by mr jan mallien and mr frank wiebe on 19 november 2018 and published on 23 november 2018. * * * mr praet, economic sentiment indicators have recently fallen steeply and markets are increasingly nervous. how concerned are you about the euro area economy? growth in the euro area is normalising. we shouldn ’ t forget that it was exceptionally high over the past two years. that was mainly due to the strength of the export sector. following the turbulence in financial markets in china in mid - 2015, central banks and fiscal authorities around the world conducted expansionary policies, and this supported trade. the momentum from exports has now abated. there are also a number of risks, such as protectionism, vulnerabilities in some emerging markets and financial market volatility. what impact are the trade disputes having? our main scenario is that trade conflicts would be mainly confined to the united states and china. moreover, one of the united states ’ main concerns is to improve the protection of intellectual property. we are not yet seeing much of an impact on sentiment in the euro area, but that could change, of course. how great are the risks of brexit, of the united kingdom ’ s departure from the eu? the risks related to a hard brexit should not be underestimated. the consequences would be greater for the united kingdom than they would be for the euro area, but we would feel it here too – the united kingdom isn ’ t a small country. the german economy contracted in the third quarter. what is your assessment of that? the new emissions tests for the car industry had a significant impact in the third quarter, mainly in germany. this matter may also affect the reputation of the companies involved. but we agree with the bundesbank, which expects output to recover in the fourth quarter. we ’ ve talked about a number of serious risks now, but the ecb still believes that positive and negative risks are balanced. why is that? the downside risks have increased, but at this stage we still think that the picture remains broadly balanced. in the case of some risks, things may turn out better than feared. a brexit agreement with the united kingdom, for example, could improve sentiment. and the trade disputes may eventually subside. but uncertainty

- makers could be tempted to take a protective stance and ring - fence their financial systems. but that would hamper the efficient allocation of resources in the global economy, or in other words, that would be bad for growth and jobs. the financial stability board and the other financial standard - setting bodies, such as the committee on payments and market infrastructures which i chaired last week in mexico, play an important role in keeping everyone together and ensuring that the new financial regulations are implemented consistently. financial protectionism is a temptation that we all have to resist. bis central bankers ’ speeches do you think that developments in the financial sector have made the world a riskier place? the financial sector is much more secure than in 2008 because the regulatory and supervisory environments have been much strengthened. the banks are smaller, their conduct has improved and they are better capitalised. the financial system ’ s resilience to shocks is much better now than in 2008. but there is no room for complacency. digital banking and digital finance have the potential to change market structures very rapidly. there is also room for better oversight of non - bank players ( “ shadow banking ” ) and better incentives for bank senior managers. the regulatory community has to address these changes. but in general i think that we are at a more secure juncture than before the crisis, especially because the banking industry is more regulated and better supervised. and in the euro area, by taking responsibility for banking supervision exactly one year ago, the ecb has certainly contributed to this. the surplus liquidity is not getting to the market and is reflected in the prevailing deflationary conditions. where is this liquidity staying? the most important question for me is : how can the economy create better long - term investment opportunities, so that liquidity goes to the right place? this is the question on which policy - makers should focus their attention. central banks can provide liquidity and improve financing conditions, but at the end it is the responsibility of elected governments to make their economies more business - friendly so that profitable projects can materialise. what did the ecb learn from the greek episode? greece is unique and but the greek experience offers useful lessons on the functioning of our monetary union : until 2010 in greece, wrong decisions were taken in the public sector and macroeconomic imbalances were allowed to build up. the lessons for the future are that euro area countries should understand that their decisions will also impact on their neighbours, and that they have to enforce policies