a better policy mix that serves europe now. since early march, the ecb has used a number of instruments to ensure easy financial conditions, thus securing access to finance for households and businesses. these include the pandemic emergency purchase programme ( pepp ), the targeted longer - term refinancing operations ( tltro iii ), and the arrangements for securing dollar liquidity for european banks through swap lines with the us federal reserve. by way of its forward guidance, the governing council has made it clear that it is ready to do whatever it takes, within its mandate, to support economic activity across europe in these tough times. an ambitious and coordinated fiscal stance remains critical, in view of the sharp contraction in the euro area economy and the reduction in private demand. while fiscal measures taken in response to the pandemic emergency should, as much as possible, be targeted and temporary in nature, weak demand from businesses and households and the delayed recovery still warrant continued fiscal support next year. 3 / 5 bis central bankers'speeches that ’ s why the next generation eu package should be made operational without delay. provided the funds are deployed for productive investments and accompanied by productivity - enhancing structural reforms, next generation eu could contribute to a faster, stronger and more uniform recovery and thus increase the growth potential of eu member states ’ economies. such reforms will be particularly important in addressing persistent structural and institutional weaknesses, as well as in accelerating the green and digital transition of our economies. this unprecedented fiscal stimulus will increase the debt - to - gdp levels of euro area countries considerably. in the euro area as a whole, debt - to - gdp will exceed 100 % by the end of this year. 4 at the same time, the size of the ecb balance sheet is expected to reach approximately €7, 000 billion, of which about €3, 200 billion will be composed of euro area government - issued papers. this has raised a concern about the division of labour between monetary and fiscal policy. as jens weidmann, president of the bundesbank, has said, “ monetary policy has the power to accommodate high levels of public debt ; however, this ability is more of a curse than a blessing. ” 5 no wonder this blessing - turned - curse has raised the issue and risk of fiscal dominance, one of the fields of interest of professor eric leeper, who will also have the floor today. in a fiscal dominance regime, price level would no longer be treated as a purely monetary phenomenon,

to look into further analysis on the way. having said that, i would like to share my personal views on some of the key issues of the review. why is the strategy review so important? the simple answer is ‘ change ’ – especially the change in the operating environment of monetary policy. since 2003, the euro area and the world economy have been undergoing profound structural changes. in combination, these have lowered the natural rate of interest, or the equilibrium interest rate. declining trend growth on the back of slowing productivity and an ageing population and higher savings rate, as well as the legacy of the financial crisis, have all driven interest rates down, thus reducing the scope of monetary policy. in addition, the change in the relationship between the spare capacity of the economy and inflation – or the phillips curve – has put enormous pressure on monetary policy and price stability, as the effective lower bound now sets the floor for cutting interest rates. although unconventional policy measures have alleviated this constraint to some extent, inflation in the euro area has been low for a long time, and, what ’ s worse, inflation expectations have drifted downwards. in the early years of its operation, the ecb was seeking to establish credibility when too high inflation was the main concern. in the current environment of low rates and mostly negative demand shocks, however, the problem of too high inflation is more remote, and the problem of “ lowflation ” more relevant. the question now is rather : how do we ensure that inflation expectations will not forever stay anchored at too low a level? there are two ways to reduce the risk of too low inflation and inflation expectations. firstly, by having a clear and genuinely symmetric definition of price stability, and secondly, by having a reaction function that delivers sufficiently forceful and equally effective policy actions to deviations from the target to both directions. in this year ’ s presidential address to the american economic association, ben bernanke maintained that if the neutral rate is below 2 % or so, the new tools will add valuable policy space but are unlikely to compensate entirely for the constraint imposed by the lower bound. 3 he also added that the costs associated with a very low neutral rate, measured in terms of deeper and longer recessions and inflation staying persistently below target, underscore the importance for the central banks of keeping inflation and inflation expectations close to the target. 2 / 5 bis central bankers'speeches bernanke also emphasised that a low neutral rate increases the relative attractiveness of alternative strategies for