interest rate reductions. ecb economic bulletin, issue 4 / 2016, box 3. monetary aggregate m1, which also includes currency, grew more slowly in june 2016 ( 8. 6 % ) than in the preceding month ( 9. 1 % ). ecb, “ monetary developments in the euro area ”, 27 july 2016. bis central bankers ’ speeches the ecb has been stepping into unfamiliar territory with another instrument – how have things been going in that respect? when, in the second half of 2014, the medium - term outlook for the economy worsened and inflation expectations fell back, the governing council of the ecb decided to purchase bonds – initially government bonds and then also corporate bonds. this programme is intended to support the other measures by additionally lowering long - term interest rates via various channels and at the same time it gives a signal that monetary policy is committed to its goal of stable prices. what we are already seeing is that the bond purchases have helped to further improve borrowing conditions for businesses and households. it is however too early to analyse statistically the unfolding effects on growth and inflation. but analyses based on theoretical models have shown that the programme may have an effect – even though the degree of effectiveness is uncertain. 3 but here too it ’ s true that strong medicine has side effects. particularly in germany many people are understandably worried that the side effects could be greater than the intended effects, especially over the long term. the critics of the purchase programme are saying that it distorts debt markets, reduces the pressure on governments to reform, blurs the boundary between monetary policy and government financing, and threaten financial stability in the long run. as i said, we will therefore need to be patient for a while before being able to make a final assessment of the purchase programme. what matters now is to give the measures time to work. that ’ s why i see no reason at the moment to change the key design elements of the purchase programme. concluding remarks ladies and gentlemen, the crises of the past few years have thrust monetary policy into unknown territory. but we are far from the times of banco stockholm, when there was no clear objective for monetary policy, no theoretical basis and no experience of such matters. yes, the crisis has pushed monetary policy into uncharted territory, but we have a clear objective and we know where we are thanks to theory and experience. however, in recent years we have done a lot for the first time. the key question is whether our package of measures

boards of directors – were given strong economic incentives to focus on short - term profits. long - term value creation was not a concern in the pre - crisis world. collectively, this has resulted in excessive risk taking. a reform of the executive compensation schemes and practices is an essential part of our effort to secure financial stability. at the financial level, reform in europe will follow a two - pronged approach. first, it will be centred around the european system of financial supervisors. the establishment of this system will permit better coordination among national authorities responsible for financial regulation. if one lesson can be learnt from the crisis, it is that the reach of financial supervision and regulation needs to be extended to better monitor those financial institutions, including highly leveraged, which can arbitrage across national borders and across oversight jurisdictions. the european systemic risk board ( esrb ) will be the other dimension of the european approach to financial reform. this new body will provide early - warnings and issue recommendations that will help to prevent a renewed build - up of excessive risk in the financial system as a whole. the crisis has displayed the phase transition that risk can undergo almost overnight : a mutation from localised liquidity risk to a generalised solvency threat attacking the whole system of financial interconnections. the esrb will have to oversee the likelihood and measure the severity of these reactions and instant transmissions. the ecb and the national central banks in the eu will fully contribute to this new institutional framework. global governance the underlying approach to reforms should be holistic. the global proportions of the crisis call for a rethinking of the links between financial behaviour and macroeconomic policies, as they interact in a global scene. the g 20 has made a quantum leap in creating the new premier global economic group. the aspect that impresses me most about this group is the virtually universal consensus on global economic issues. there is a broad consensus at the level of the g 20 on the diagnosis of the crisis. there is a broad consensus on the appropriate response to the crisis. and there is a broad consensus on the direction of financial sector reform, along with the main ideas that i described a moment ago. there is agreement that macroeconomic policies at the domestic level need to be consistent with the objective of global financial and economic stability. medium - term and long - term sustainability in domestic macroeconomic policies will have to prevail. a renewed mediumterm perspective should guide macro - economic policies from now on. like financial regulation, policies