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 rolf benders, ms dorit heß and mr jens munchrath on 8 july 2013, published on 12 july 2013. * * * mr praet, despite all the help provided by the ecb, half the continent is deep in recession, the governments of europe are scarcely in a position to push reforms through and even the german economy is showing weaknesses. what else can the ecb do to save the euro? there are limits to monetary policy. but it is true that the recession in europe has not yet been overcome. we expect a slight improvement in the second half of the year. but we still see downside risks. to put the recovery on a solid footing the countries must significantly increase their efforts as regards structural reforms. what risks do you mean? in china certain risks are emerging, because growth is too credit - driven. that ’ s having consequences now. on the other hand, economic conditions have been improving in the united states. so it ’ s unclear whether foreign demand for european goods will rise or fall. the uncertainties in the economic analysis were – with the results of the monetary analysis – the main elements of our discussion at the last meeting of the governing council of the ecb. were you in favour of a rate cut? what happens is that i, as chief economist, present the macroeconomic and monetary data at the beginning of a governing council meeting and make proposals for decisions. then the discussion starts – it ’ s not all black and white – and at the end, after all arguments have been exchanged, a consensus is formed. what were the arguments for a key rate cut? in our discussions the first task is always to arrive at a common assessment of the situation. we were in agreement as far as the outlook for price stability was concerned, including the development of the economy and the fact that lending to companies has deteriorated – and that there are signs of a further deterioration. in addition we have noticed that, without monetary policy action from our side, long - term interest rates have risen. afterwards we discuss what decisions we should take in response to the situation. here, there was a discussion about rate cuts. but at the end we agreed on the decisions that you know. instead of cutting rates you have now committed to keeping rates low “ for an extended period

national accounts indeed have a hard time taking into account improvements in product quality and product entry or exit. as a result, they tend to overestimate inflation and underestimate output. for instance, there is currently an issue with it hardware, as output of these products is inadequately recognised, even in the us. but the growing share of digital computing technologies in economic activity raises new specific challenges, both on a conceptual and practical level [ slide 4 ]. let me take the example of travel services. on a conceptual level, digitalization is blurring the frontier between the market and informal economy, and leading to the development of “ c to c ” services ; for example, many of us now directly buy our holidays on - line. this disintermediation of services has been accompanied by a significant improvement in their quantity and quality. yet, travel services are now in large part ‘ home production ’, and the measured market value added of travel agency services is declining. on a practical level, with the rise of digitalization, new kinds of services can be imported, notably through e - trade, and the location of activities is less easy to determine. moreover, the fact that 1 / 3 bis central bankers'speeches these services are not standardized and evolve quickly makes it more difficult to estimate the deflator for service output in national accounting. the concern over output mismeasurement is therefore serious. yet mismeasurement alone cannot explain all of the slowdown, as it did not suddenly appear in the mid - 2000s. 2. is it also a demand phenomenon? i am very much inclined to say it is. negative demand shocks are particularly pernicious when interest rates are already low, as there is limited room to spur demand by cutting interest rates. in central banking jargon, we say that short - term interest rates cannot be reduced to the “ natural rate ”, which is the level where demand equates to potential output and inflation is stabilized. faced with these constraints, major central banks have implemented an array of non - conventional measures, including forward guidance and qe, in order to help stimulate demand by lowering long - term interest rates further. so why is demand proving so slow to pick up in spite of these highly stimulatory measures? [ slide 5 ] wage - setting mechanisms are likely to play a role. insufficient attention has been given to this, due to differences between countries and the fact that it is a micro - level issue.