s no point artificially setting the interests of different countries against each other, because we are all in the same boat … your policies have also weakened the banks, who have seen their margins shrink to the point that some of them are no longer concerned about charging for deposits. on the one hand, interest rates are not low because of the ecb. us lowering our “ key rates ” ( for example, the rate at which bank deposits held with the ecb are remunerated ) to very low or even negative levels means that there is a savings glut in the economy : the natural rate of interest has fallen due to weak growth, the ageing population and a sort of anxiety in the global economy leading to demand for very safe assets, like government bonds. but for monetary policy to work and stimulate the economy, the interest rates set by the central bank have to be below this equilibrium rate. if one wants to return to a situation in which savings generate returns and conditions are supportive for the financial sector, criticising the central bank achieves nothing. action needs to be taken on the fundamentals to boost returns on capital, which would naturally lead to interest rates increasing, and the central bank could follow. on the other hand, it is true that the fact that the yield curve is flat, in other words that interest rates are low across the maturity spectrum, is weighing on the financial sector. indeed, the difference between the long - term performance of savings and the short - term cost of funding is currently almost zero. but what is weighing even more heavily on the profitability of european banks is that they have a cost base that is much higher than that of banks in the united states, japan, the united kingdom and scandinavia, and that, in certain countries, they have nonperforming loans on their balance sheet that no longer yield a return. and finally, there are too many banks in europe and consolidation has not started. so, we need fewer banks in the euro area? the banking union hasn ’ t yet enabled consolidation within the sector. we need to see crossborder m & a activity in the banking sector, and we also need to overcome a number of obstacles to banking activity. but the banking union has played a useful role in stabilising a sector that is now much more robust than it was in 2012, since the ecb has taken on the role of banking supervisor and has strengthened capital and liquidity requirements. it is important to recognise that one of the

. yet it remains a necessary condition. and today in the euro area we face a situation where price stability is once more under threat – this time not through too high inflation, but through inflation remaining too low for too long. in that context, the ecb has been engaged in an unprecedented expansion of its monetary policy toolkit to bring inflation back to its objective. yet these measures have not been uncontroversial, and questions have been raised about their necessity. what i would like to talk about today, therefore, is not so much what the ecb has done, or how it works, but why the ecb has been so determined to raise inflation. that requires that we first take a closer look at the ecb ’ s objective. see romer, c. and d. romer ( 2013 ), “ the most dangerous idea in federal reserve history : monetary policy doesn ’ t matter ”, american economic review : papers & proceedings 2013, 103 ( 3 ) : 55 – 60. federal open market committee meeting, transcript, 21 march 1978. bis central bankers ’ speeches the ecb ’ s objective the treaty on the functioning of the european union establishes the ecb ’ s primary objective as maintaining price stability. but unlike some other central banks, we have not been given a specific numerical inflation target by a legislature or ministry. to enhance accountability, in 1998 the ecb governing council decided that price stability should be defined in quantitative terms, as a year - on - year increase in the harmonised index of consumer prices for the euro area of below 2 %, and that it should be maintained over the medium - term. following a thorough evaluation of its monetary policy strategy in 2003, the governing council further clarified that, within this definition of price stability, it aims to maintain inflation rates “ below, but close to, 2 % over the medium - term ”. in other words, since that clarification in 2003 the numerical range for the definition of price stability has been supplemented with a focal point at which the governing council aims, while the temporal horizon over which price stability has to be achieved has remained flexible. however, as inflation has consistently been ratcheting down to the bottom of the price stability range in the course of the past four years and our measures, as a consequence, have become more expansionary, how we interpret our objective and the relevant horizon for delivery have been called more into question. there have been two main issues raised. first, some have asked if