jorg asmussen : saving the euro speech by mr jorg asmussen, member of the executive board of the european central bank, at the economist ’ s bellwether europe summit, london, 25 april 2013. * * * ladies and gentlemen, first of all, let me thank the economist for inviting me to speak on this panel on “ saving the euro ”. this is a catchy title – but, in truth, i think it is out of date. the euro is already “ saved ”. it will survive this crisis, it will emerge from it stronger and more countries will join the euro in the future. the problems we are facing today are different : how to avoid a “ lost decade ” of stagnating growth and high unemployment ; how to deal with unhealthy bank balance sheets ; how to answer to the understandable frustration of many citizens who do not see a “ light at the end of the tunnel ”. in other words, we are not facing an acute or terminal sickness, but as the imf recently noted, a chronic one, that could cause us pain for years to come unless we fix it. and fixing it is complex. we are simultaneously facing a banking crisis, a crisis of public and private debt, a competitiveness crisis and a crisis of trust in institutions and political decision making. there is no magic bullet that can solve it. we are in the middle of a decade of adjustment. but this of course begs the question : what can we do? and this is what i want to focus on in my remarks today : what it is realistic to expect the euro area to achieve – and what it is not. in particular, i want to answer three questions : first, should the ecb be doing more? second, how can we overcome the political challenges to adjustment? third, how will economic and monetary union ( emu ) develop from here? should the ecb be doing more? starting with the first question, “ should the ecb be doing more ”? first of all, it is important to understand that the ecb has already done a lot. we have given funding to banks at fixed rates and in unprecedented volumes. we have lent at up to 3 year maturities. and we have widened the collateral that can be used in our operations, allowing national central banks to differentiate, within limits, according to their domestic conditions. more recently, with outright monetary transactions, we have taken tail risks out of the market by creating

that are too low for too long can eventually lead to distortions. in particular : • to a misallocation of resources, which ultimately leads to lower potential growth, • to excessive capital inflows into a number of emerging economies with exchange rate effects and credit risks, • and to reduced incentives for governments, banks, and corporates to adjust. these costs of very low interest rates are real, and they rise over time. of course, these costs have to be weighed against the need for exceptional monetary policy measures in a crisis. these transmission problems bring me to the third dimension : we have to recognise the limits to what monetary policy can achieve in current conditions. the ecb can and has addressed bank funding problems. but there are other barriers holding back bank lending, like heightened risk aversion, a lack of loan demand and insufficient capital. and above all, bank lending will only fully come back when the bank balance sheet repair is completed in all member states. the ecb cannot remove these constraints. this is where our responsibility ends and that of governments or other eu institutions begins. monetary policy is not an all - purpose weapon for any kind of economic illness. how can we overcome the political challenges to adjustment? some of you might react to this that governments are already being asked to do too much. that the costs of adjustment are too high in some countries, and at some point, people will simply not take anymore. this links to my second question : how can we overcome the political challenges to adjustment? bis central bankers ’ speeches let me be clear : every policy - maker in the euro area understands that the process of rebalancing within the euro area is painful. we are deeply concerned by the levels of unemployment we are seeing, in particular for young people. in spain, more than 5 in 10 young people currently cannot find work. in greece, the figure is almost 6 in 10. this is unacceptable – and it is also dangerous. but the political challenge, i believe, comes not from the process of adjustment itself. people can accept a period of hardship if it is necessary. it comes from the belief that there are better alternatives available that are being denied. this is what causes people to reject adjustment, or to blame others at home or abroad for their predicament. this is fine as far as it goes : we are democracies and we need a robust public debate. but it becomes a problem when the debate does not contain all the facts. if politicians