##able funds, which have to be matched by savings. seen over the long - term, the growth rate of total factor productivity ( tfp ) has been slowing in the euro area for decades. population growth has also declined from about 0. 7 % in the early 1970s to around 0. 3 % in recent years. and looking into the very distant future, the downward pull from adverse demographics could accelerate : some model - based simulations suggest that demographic trends – notably a rising supply of funds provided by an ageing population – could result in a significant reduction in the real rate in the long - run. 6 alves, i., j. brinkhoff, s. georgiev, j. c. heam, i. moldovan and m. scotto di carlo ( 2015 ), “ network analysis of the eu insurance sector ”, esrb occasional paper no. 7 ( july ). for this section see charts 1 – 12. kara, e. and von thadden, l., interest rate effects of demographic changes in a new keynesian life - cycle framework, macroeconomic dynamics, forthcoming, ( published online : 14 july 2014. ) bis central bankers ’ speeches on top of the gravitational pull of these secular forces, there are cyclical factors weighing on real interest rates that are more directly linked with the global financial crisis. notably, the euro area is still working its way through a “ balance sheet recession ”, where a situation of severe debt overhang sets the conditions for a sharp downturn, which in turn creates the need for substantial deleveraging and prolongs the length of the slump. this is the product of a pre - crisis period where, misreading the signs of declining productivity growth, firms, households and in some cases governments accumulated excessive debt on the basis of overly optimistic real income expectations. the result has been excess savings in the post - crisis period caused by the need for all three sectors to repair their balance sheets, while over - indebted firms and households in some countries have been confronted with higher credit premia, further depressing investment. investment indeed remains well below pre - crisis levels. the damage caused to the economy by these dynamics has been massive. youth and longterm unemployment has risen significantly in the euro area, with “ hysteresis ” effects estimated to have notably reduced labour supply. this feeds back into a slower potential growth rate, and potentially for some time, given the strong sectoral dimension to the crisis and the

our policy caused by the financial fragmentation of the euro area. we have therefore had no choice but to resort to unconventional measures to ensure price stability in this environment. operating in a bank - centric economy, the main focus of our unconventional measures in the early phase of the crisis was ensuring the transmission of our policy across banking institutions, in the context of a generalised collapse in the interbank market. then, when fragmentation became more pronounced along national lines in the post - debt crisis phase starting in 2011, our focus shifted more to ensuring adequate liquidity to banking sectors. by the middle of last year, however, it became clear that the measures we had adopted to provide a liquidity backstop for banks were becoming less effective, in terms of their passthrough into credit conditions for the real economy, as banks were actively deleveraging. we therefore adopted the targeted long - term refinancing operations ( tltro ), as part of our credit easing package, in order to create incentives for banks to lock - in low long - term central bank funding and originate cheaper loans to the real economy. after we launched this credit easing in the summer 2014, the inflation picture materially worsened. throughout the second half of the year macroeconomic outlook deteriorated and underlying inflation dynamics weakened, which began to spillover into long - term inflation expectations. that fall in inflation expectations also corresponded to a rise in real interest rates – an effective monetary tightening. faced with growing disinflationary risks, and with the scope for rate cuts now exhausted, we at that point moved to asset purchases as the for this section see charts 15 – 17. bis central bankers ’ speeches main tool to expand our monetary policy stance. this was the context in which we launched our expanded asset purchase programme ( app ). we are generally satisfied with how these measures are working so far, and we will continue our monthly asset purchases until the end of september 2016, or beyond if necessary, and in any case until we see a sustained adjustment in the path of inflation that is consistent with our price stability objective. notably, our asset purchases have contributed to a compression of term premia, which are currently negative according to several model - based estimates. our measures are also having a positive impact on transmission. banks ’ intermediation capacity is strengthening via the incipient improvement in their asset quality and increased profitability. bank lending rates for both households and non - financial corporations ( nfcs ) are converging downwards across