rai and williams ( 2012 ). see rba ( 2018 ), ‘ domestic financial conditions ’,, august, pp 39 – 50 for a summary of recent conditions in short - term money markets and a discussion of factors contributing to elevated short - term money market rates. two caveats regarding the interpretation of these simple modelling results are in order. first, it is possible that the statistical relationship between credit and gdp growth reflects the effect of some omitted factor — perhaps an indicator of overall financial conditions, such as interest rates for example. second, this exercise is not intended to capture a potential role for credit in determining the longer - term economic outlook. for instance, the council of financial regulators has identified growing economic risks relating to the high level of indebtedness among australian households. for a recent discussion of these risks, see bullock ( 2018 ). taking account of such relationships is beyond the scope of my simple exercise. et al funding statement on monetary policy © reserve bank of australia, 2001 – 2018. all rights reserved. https : / / www. rba. gov. au / speeches / 2018 / sp - ag - 2018 - 09 - 19. html 16 / 16

account the risks it poses for certain sectors of activity and financial securities, and we need to reflect on its consequences for monetary policy. and then there were other errors that were not of our making : one reason for the deterioration of the crisis in the euro area was that we lagged far behind the united states in cleaning up the financial sector. the european countries were deluding themselves about the state of their banks and we were very late in conducting serious stress tests and imposing recapitalisations. certain countries, including france, even fought rearguard actions so as to avoid bolstering their large banks ’ capital base. all of this has weighed on growth. we now need to make sure we don ’ t slip back again! christine lagarde has announced that she will lead a review of the ecb ’ s strategy. christine lagarde is right. it ’ s a good idea to step back and lead such a discussion. i hope that the debate will not be held solely within the ecb, but that independent economists and civil society representatives will be involved too. if we look back on how the euro has fared since 1999, we can see that it did not produce all the effects that people had hoped for. trade in the euro area is declining, the capital markets union is in limbo, countries with large capital surpluses, such as germany or the netherlands, are investing them in the united states or in china, etc. in fact, the country that is gaining the most from the euro is germany, which amply benefits from the euro ’ s undervaluation. everyone benefits from the euro because the exchange rate risk has disappeared and financial conditions for investment have never been so favourable. likewise, the euro is a common good that enables us to speak with one voice on the international scene, even if we don ’ t make enough use of this strength. but it is true that we created the euro, which was backed up with the banking union and the european stability mechanism, to enable a single european market, and the fact is 4 / 5 bis central bankers'speeches that this market is at a standstill. why? because at the outset it was conceived as a space for the free movement of goods, whereas we are now in a service economy and there is no single market for services. you cannot ignore the northern european countries ’ refusal to offer financial solidarity. we have a political problem : the european states have a single currency which, through its very existence, is