 I would like to welcome everybody. I think we are ready to start now. So I'm very honored to have this very prominent round here of some of the most respected leaders of central banks in the world. We do have the former president of European Central Bank, Mr. Trichet. We do have the president of Poland, National Bank, Mr. Belka. We do have Jakob Frankel. For a long time, he was president of the, he was governor of the Bank of Israel. And we do have Moghuri Surescu, the governor of the Central Bank of Romania. When I did prepare, actually, for this session, I was thinking about all this discussion we had about the policy of central banks in the world with quantitative easing and all these things. But now with having so dramatic things going on in Europe and all over the world, I would actually like to open with another question. I would actually like to ask Mr. Trichet when I hear this news in tomorrow morning again that we have terrorist attacks in Mali, I just wanted to know from him who actually has a lot of experience in what is going to happen in economies of the terrorist attacks. Is he actually awaiting that this terrorist attacks we see now in Europe is going to impact the economy of Europe and the world? I have to say we are far from central banking, of course, with this question, to respond very briefly. My own understanding is that after the previous attacks of that kind in Madrid, in London, elsewhere in the world, we have, of course, and we always had an immediate impact, which was not negligible, of course, on confidence, on the overall attitude of economic agents in general, household and firms. But in the cases I have mentioned, it appeared that it was a transitory phenomenon and it was not a lasting one. Of course, provided it appears that the necessary measures are taken and that the resolve of the people and peoples concerned and the resolve of the authorities is such that it recreates confidence, which I expect will be the case, even if, of course, what we have observed was particularly dramatic and extremely moving. The fact that we have now in Africa a new phenomenon of that kind with the 170 hostages, if I understand well, in Mali is, of course, something which is adding to this emotion. But again, it's a global phenomenon. It's a global challenge, a global enemy, which is crystallizing in many places all over the world with pre-announcement that it is really something global. But again, my own working assumption is it will have an impact, but it is transitory and will get out, as was the case in the past, from this transitory period. If I ask you, Mr. Frank, you had a very big experience with things like this happening in Israel. You see the government spending more money on defense. This has an impact on the stability of a country. Do you think this is going to weigh so soon, as Mr. Trish has said, or do you think this is going to be a lasting impact for years? Well, the answer depends on what will be done. The reality is that the immediate impact of atrocities of this kind are more, of course, there is the human toll, which we should never underestimate. But when we go to the macro-global picture in and of itself, they are not of the dramatic sense in the sense that growth of economies are not going to be altered per se. What is important, however, is that in some circumstances, some sectors are going to be more impacted, especially the tourism sector. If I look at Egypt, this is a very important issue. But I feel, like Jean-Claude Trichet, that the key, we should look at it also not only as a challenge, but also as an opportunity. This is a situation where there is an extraordinary opportunity to exert demonstrate leadership. If there is leadership that recognizes that one does not talk about a local phenomenon, but one talks about a global phenomenon, and leadership that recognizes that the global phenomenon needs to be addressed with global perspective, with global solidarity, then I believe that there might be something positive that will come out of it. It is a terrible reality, but there is no question in my mind that with the appropriate addressing of that reality, it will be receiving its right dimensions. It should not become a macro issue, but it depends on a macro approach to ensure that it does not become a macro issue. Thank you very much. As far as I understand it, and I see it in the news, it's kind of with all this crisis, the crisis about the refugees in Europe, all the discussion about the stability of the Euro did go away a little bit. Is this actually just an impression that I have, or is this something that you think so too? I would like to ask this Mr. Belka, who is actually, his country is not a member of the European currency. So what do you think? Is this actually the crisis of Euro is gone away now, or is this just the news that is gone away from this? Well, all the problems that the Eurozone has, and I would prefer to call it the problems of the Eurozone rather than the problems of the Euro, have not gone away, but they are, at least momentarily, dwarfed by the refugee crisis, and particularly the crisis that comes from the terrorist threat on Europe, and basically not only on Europe. So yes, we deal with, and we have to deal with the refugees, with terrorism, but of course the problems with Greece, the problems with the fundamental issues of Eurozone sustainability, or currency zone sustainability, have not gone away. Is this actually the impression that you have in Romania too? Or less, that on one side, I could say that the refugee crisis added to already several problems in the Eurozone, but just when the discussion started, I recall the farewell dinner several years ago with Professor Ising when he said, finally, that Euro is an unfinished project that is impossible to stay only on one pillar, meaning the monetary policy, that the other two pillars, meaning the joint fiscal policy and also kind of more political cooperation is absolutely necessary to have a stable Euro. Then the perception in Romania is something like this, we like to join Euro, we have only a waiver, we try to have the mastery criteria, and we already have met all the mastery criteria, but we understood, particularly from Greece experience, that only nominal convergence is not enough, sustainability of nominal convergence is a key word, meaning also a kind of real convergence and a general convergence, and then we have to wait up to the moment when we are better prepared and when the Eurozone is in a better shape, you say. The Eurozone in not a very good shape. Mr. Trisha, you started actually as being the first president of this United currency, is you started with actually statements about stability and with a completely different agenda from that that we see now, did actually the consensus about how a central buying should be governed change since you started? If you permit, I will first perhaps be compliment what has just been said by our two colleagues. You can present things in a quite different fashion. You could say from the very beginning, the Euro as a currency was considered with great skepticism, I am myself a witness of that when I was in New York or in Asia before the creation of the Euro, the idea was either it's impossible or it would be a total failure, the currency, and in any case it's impossible to have a credible currency starting from scratch with so many different currencies merging. And the other I would say bias against what we were doing in Europe was it goes without saying that if you have to go through a very grave financial crisis, the Euro as a currency will disappear and the Euro area will be dismantled. Now what happened? Because we had the stress test. The stress test was the worst financial crisis ever since World War II, which perhaps could have been the worst financial crisis since World War I had the central banks not reacted everywhere in the world very, very boldly and swiftly. What happened was exactly the contrary of what was anticipated. First, the currency proved to be credible, to inspire confidence and to preserve stability to the extent that the main criticism against the currency was it's too strong for a currency which was supposed to disappear, it was very paradoxical and I experienced that myself as you know, being president. Second, how many countries were in the Euro area when we had Lehman-Brother collapse? 15, 15 countries in the Euro area at that very moment. We went through the worst crisis ever since World War II. How many of the 15 are still there? 15, including Greece because 69% of the Greek people in all survey proved that they wanted to stay and that the only reason why Greece is still there, it is the will of the people. And four new countries got in. Four new countries, the three Baltics and Slovakia so that we are 19 now. The four new countries entered in the time of the crisis. So I only mentioned that not to say it's a fantastic success, only to say it is much more resilient than was anticipated by the overwhelming majority of observers. Second, the real success will be growth and jobs in the medium and long term. And we have to work actively on that and I share entirely the views expressed by Mugu. We have to continue constructing Europe in improving the executive branch side of the Euro area and in improving the, I would say, democratic legitimacy of the Euro area and these are the two directions where we need a lot of hard work. Are you really sure that actually people really support the Euro as much as you say? I mean, if you would vote here in Switzerland, nobody would support being a member of this currency. If you would vote in Germany, people would say no. Probably if you... You're totally wrong, sir. I'm very sorry to say that. In Germany, precisely, we have one of the most important support for the currency. Paradoxically, as well as in Greece, as I just said, approximately the same level. In Switzerland, I have no doubt on your position, knowing also that you do not want to be a member of the United Nations organization. You have a lot of very good reasons, perhaps not to enter the European Union. But no, I think don't trust all what is said usually. What surprised me very much when I look at the last Euro barometer in Europe. It's a survey which is done every six months by the Commission. I was very impressed by the fact that there is no confidence for any institution or any leaders, quote, unquote, in general in Europe. But there is paradoxically more confidence for the European institution than for the national institution. More confidence for the European parliament than for the national parliament. More confidence for the Commission, which is extremely paradoxical, than for the European national government. So it means our people are not satisfied and they have very good reason for that. They have no confidence in their leadership and we have to reconstruct that. But to say that Europe is rejected generally is not what I observed in the survey. Are you so positive about what is going on in Europe and especially with the Euro II, Mr. Frankel? Well, by way of answering this question, I will refer first to the preceding question. Well, you put on the same level in your question the refugees challenge and the Euro challenge. Historically speaking, the creation of the Euro and the management of the Euro is a fantastic development. It's a huge change. And of course, the effort to maintain it and strengthening it is in place. Nothing is perfect, but you can call it work in progress, but there is progress. There is underlying understanding of what's the root cause of the challenges and that's why people talk now about the banking union and things of that type. When it comes to the refugees, of course, as you indicated correctly, it takes the headlines and the attention of leadership and maybe properly so for now, but there we are as far from a solution as one can be. We have to understand the solution to the refugees issue is not the question of who will absorb so many refugees, but rather we need to understand why do we have these refugees and how do we reduce the flow and the need to become refugees because the reservoir of the millions and millions of people who are potential refugees is so big that there is no way that the discussion that is now taking place of who will absorb how many can solve it. So the fundamental solution is not how to deal with the current refugees, which is a short-term challenge, but how to ensure that there are no future refugees and this requires a much more dramatic political decisions and political actions in the global scene. So in this regard, I'm obviously sharing Jean-Claude Richer's fundamental optimism about the euro because the way, how does one become optimistic or pessimistic? You know, it's a matter of, it's not a matter of character. I'm an optimistic guy, so but still, the question is what is my expectations? What could have happened and what has happened? We are much more advanced than what could have happened within the euro area and it is in this regard I'm more optimistic. We are less advanced in the refugees and therefore I'm not optimistic. I'm not seeing addressing the source of it and therefore I'm even a little pessimistic. I leave this issue. Do you think that actually the problems we have with refugees, it seems from an economic standpoint, it's not a very big issue in a way, but it is a big issue for the European community because it could blow up the whole system there. What do you think in Poland actually? Is this more important for you than the possibility of joining the euro or let's say the challenge that we have with the euro crisis? Well, it's unusual for central bankers to discuss refugee crisis and how to stem the inflow of immigrants' refugees to Europe. But let me try to draw a parallel between the euro stress-tested during the recent financial crisis of the world and the European integration, the European project of integration being stressed as now by this unprecedented international situation. Well, we should remember that Europe has taken and absorbed broadly, successfully tens of millions of immigrants, refugees you prefer, in the last decades. And of course it didn't go without problems and I don't need to say this to the French, but the Swiss, well, mostly this problem, this phenomenon of immigration was a source of dynamism elevating to a certain extent demographic misery of Europe. Well, now we have a different situation. It's not only about the numbers, it's about general circumstances of these immigrants or refugee inflow. It's the wave of terrorism. It's the war. It's the war that has no precedent in our, as far as our memory goes back, atrocities committed by the, whatever you name it, I see. So this creates a different atmosphere among the people, among the peoples. Even those, well, we in Poland, we have taken about 85,000 Muslims from Cezna. Well, many of them moved away to other countries, but most of them, or some of them stayed. Chechens are not among the most moderate Muslims, I must say, and it didn't pose any problem, any political, any, let's say, assimilation problem to our country with this. Now it's different. It's not about the numbers. I mean, the numbers we are talking about in my country are peanuts, few thousands, and the problem is the overall atmosphere. It's the war, I don't know. Well, this is a very serious stress test for the European integration, for whether Europe will address this issue in a community way, in a communitarian perspective. No, Euro, you may say it's a great success. It has been a great success. And it survived the crisis. Yes, we have problems with certain, let's say, cohesion among the Eurozone countries, divergence being the key issue. But whenever Europeans do something together, like trade policy, they become a superpower. And Google is more afraid of Ms. Westager than of anyone else in the world. So maybe it's time to rethink European foreign policy, European military policy, because I'm not an expert in certain bankers. You should not have provoked us into this, but if there is anything similar between the refugee crisis and the stress-testing Euro, it's that whenever we do it in common, we are much more successful than if we try to do it, let's say, chaotically one by one. Okay, let's move away a little bit from this issue and go back to what actually did unite most of the leaders of Central Berks in the world. This was actually the reaction on the financial crisis. It seems that there is a common sense about how we should actually deal with crises like this now, which is completely different from what we thought about in the year 2000. So it seems that the group of 30 has a new proposition, Mr. Frankel, can you tell us a little bit more on about the learnings and what do you see in the future and how to deal with financial crisis and the consequences of it? Thank you. Since some of you may not be familiar with the organizational setting of the group of 30, the group of 30 is composed of 30 individuals and in fact, both Jean-Claude and I are now in the leadership of this group, I'm the chairman of the trustees and Jean-Claude is the chairman of the group. What is unique about this group is it is composed primarily of current and former central bank governors. The reason why I mention it is that after so many years since the beginning of the crisis, there was the time to take stock and say, what have we learned? One statement of modesty to begin with, in 2007 in the height of the crisis and the beginning of the unconventional monetary measures, et cetera, no single governor, if you asked him to put in an envelope a date that he believes that this detour, that these unconventional measures will finish, nobody expected that in 2015, in November, we will talk yet about the very issues of unconventional policies. It was perceived at the time more as a short-term detour to solve a problem. So it turned out to have become something more fundamental. We understand now also why it's a different character of crisis and some colleagues like Ken Rogoff and Reinhardt even wrote a book which is called This Time It's Different. The rationale is that some of the crisis is really what we call balance sheet crisis that requires long-term adjustment. One of the issues that came out of this report, which we call the Fundamentals of Central Banking, Lessons from the Crisis, is first, we have learned a lot, but don't throw the old textbook away. There is still a lot of wisdom in it. There are new chapters into it, but it's not a very new world, it's a very modified world, which means that the basic mandate of Central Bank should still be medium-term price stability, that the mechanism by which Central Bank can exercise its capabilities is by having Central Bank independence from the political pressures. Recognizing, and that's the new part, that we are now in a world in which financial markets are so important that financial stability must be also part of the mandate of Central Bank. But we also observed that there are too many articles that say that Central Banks are the only game in town, and we don't like it. We don't like it because while it is kind of a complementary thing, wow, we are the only game in town, there is no way that without the strong support of governments in both the fiscal side, but more importantly, the structural side, that we can generate growth. And at the end of the day, sustainable growth is the ultimate objective. So one of the pleas in the report is, yes, to extend the mandate to include financial stability, to extend the instrument to include what is called macroprudential instruments, to recognize, however, that Central Banks cannot do it alone, and therefore we need to have a much greater involvement of governments, to recognize that in the system of an international setting, the best ways to shield you and others from financial shocks that happen elsewhere is through flexible exchange rates, and to make sure that all of this is done in a very transparent way, an accountable way. So communication between Central Bank and the economic system is key. The idea is not surprise the markets, but in a way, prepare the markets. And what we see today, for example, in the Federal Reserve is the par excellence example of how you prepare the market. When things will happen, you will not be surprised anymore. There was some time ago a surprise which did not work well. It only illustrates how important it is to have the transparency and good communication with the market. In the discussion before, I hear Mr. Monti saying that we are actually locking leaders in Europe and in the U.S., so the Central Banks have a much more prominent role that they actually should have. Do you share this point of view, Mr. Trischer? I don't share entirely the view that leadership is particularly poor at the present moment, and I refer to the last reaction after the dramatic events which were mentioned a moment ago. So we will see. I mean, what we have to see is the resolve of, as I said already, and Jaco, because of the authority and of the people. And I expect that this resolve would be absolutely obvious. But to respond to your question, Central Bankers had to cope with the worst crisis ever, as I said, probably since World War I. Had we not had swift and extremely bold reaction, first at the level of Central Banks, then at the level of governments, we would have had, in my understanding, a great depression that would have been much, much worse than the great recession that we had to cope with. And I'm speaking particularly, of course, of the advanced economies. So in those circumstances, it's not surprising that those who were on the front line, and these were the Central Bankers, and had, again, to cope with these absolutely exceptional circumstances, well, very fortunately, they were up to their responsibilities. They took those bold decisions. As early as, I would say, August 2007, for instance, in Europe, we decided to supply liquidity on an unlimited basis to all commercial banks, and we were asked 95 billion euros, and we gave 95 billion euros. These decisions were taken in two hours and a half by the executive board, because we were in presence of something which was totally unexpected. The Central Bank of the United States took extraordinary bold decisions, so bold that there were highly criticism, a lot of criticism against these bold decisions, still. Until now, I take it that they were absolutely right to take these bold decisions. And again, of course, when you have to react to such dramatic circumstances, you're very visible, and it creates the sentiment that you are the only game in town, as Jacob said. But, of course, it's not true at all. We were reacting very boldly on the liquidity front, and all of us asked the governments to be themselves able to reassure the market participants, the investors and savers in the advanced economy and in the entire world that they were also behind. And finally, all heads of state and government said in various fashions, in various modalities, there will not be a new Lehman Brothers in my courtyard. And it was said in the U.S., in Europe, in the U.K., in the Euro area. Only to show that what made the feeling at the very beginning that we were prominent was that we were on the front line and we had to react extraordinary rapidly. After Lehman Brothers, at a moment where some executive branches were still saying it's normal to have bankruptcies in market economies and they were trying to play down the importance of the bankruptcy of Lehman Brothers, all central banks concerned were in close contact to work out the response. And we were able in two days to have all our decision-making processes to agree on the same text, the same communique, and the same response at a global level with publication on the first day following the Monday of the drama. So only to show that, but again, we are not alone. We must not be alone. We should not accept to be considered as the only game in town. And one of the message that Jacob, who was not only the chair of the trustee in the G30, but also the leader of the work which has been done on central banking and on the fundamentals of central banking, as he said, the main message, one of the main message is that the other partners, namely governments, executive branches, parliament and also the private sector, have to be there, have to mobilize themselves because the central banks cannot be responsible for stability, growth, job creation and the rest. We have to get all the other partners on board for good policies, structural reforms and all what is needed to elevate the growth potential of our economy. When I see your neighbor, Mr. Isarec Skou, he actually has a role that is probably even more difficult than being the leader of the central bank in Europe because I think the political environment where you have to deal with is even more unstable in Romania, but you have always been stable, the currency has always actually followed more or less in a stable way. What do you think about this leadership of the politician and your leadership of the central bank? How could you actually survive in an environment that has been politically very unstable? My opinion is that the leadership is necessary to be political. They have the democratic legitimacy. They are elected. The technocrats could be from time to time in more or less difficult periods, but for limited periods, could be in the front line. And I was there. I was one year prime minister and I returned to the central bank. And I realized once again that the political life is tougher, quite tougher than the central banking. But again, we could provide experience, we could provide, to say, professionals, and we did this in the past. Now, one lesson which I learned from my experience is to understand that independence of the central bank is not a kind of isolation. That is an active independence. A kind of working with the government, keeping the independence, keeping your mandate, looking to your goals which are put into the law, but working with the government and having all the skills, which of course they are developed in time, to understand that also the political life is not simple. And sooner or later you have to understand that the politicians are in front of the, to say, population. And they have to deal with, first of all, with the crisis. We have also our job in this direction, but from my point of view this is crucial to have a kind of understanding of the politicians. Secondly, is that to realize that we had from the very beginning the mandate of price stability, which is now a consensus at least in Europe among the central bankers. But we had from the very beginning another task which is the transformation of the banking system in Romania from a mono bank to a two-tier banking system to privatize the banks, to have the foreign banks entering in, to bring in Romania the capital, to say education, financial sector, to bring in also to say experience, but it is that we try to do also this job which in a way or another could be called herculean to have this kind in 20 years of huge transformation of the banking sector alongside with trying to keep the price stability, medium and long term price stability. And another aspect which I like to stress also from my experience with the fact that I kept in mind what one day professor Charles Bucher said that the central bankers are always looking to all three aspects of stability. Price stability, financial stability and external currency stability. Of course in different proportion, if I try to look into the future of the central bank, I have to look a little bit into the past to get some light. And I could say at least in our case we had never the luxury in these 20 years to look only to the price stability because financial stability created mostly by the transformation process and also when we fully liberalized the capital account by the capital flows which are very volatile and anyway they are not looking to the rule of the, to say, policy rate which it's impossible to deal with the policy rate for keeping price stability at the same time to keep also financial stability. Then we developed gradually what we called before the crisis erupted an unorthodox monetary policy, unorthodox monetary policy. Now they are called always in Europe and I could say in several countries in the world they are called macro-pudential instruments and macro-pudential policies looking at the least to financial stability. Currency stability, external stability proved in Romania and I discussed many times with Marek Balca, Gavrind Balca about this highly sensitive issue in a country like Romania. Interest exchange rate was looked mostly and much more comparative with interest like indicator of good or bad. That's if the exchange rate was depreciating. The public understood that the country is not moving in the right direction. More than this, if the exchange rate appreciated we're faced with, to say, real problem for credit stimulating for credit putting risk. Then try to look also to the exchange rate stability in a kind of sliding corridor as I learned in the 17s when the Jack O'Franco was governor from Bank of Israel. It was something which I consider also good. It's not at all simple to have only one instrument the policy rate, the interest rate to deal with all these aspects that we have to develop also other instruments and we didn't keep idle reserve requirements for example or other prudential measures when it was necessary to deal. Just to mention also Jean-Claude Richet he understood me in 2006 when I tried to explain that increasing the interest rates to slow down inflation in Romania which was higher than in Europe was not the best instrument because this was stimulating for credit and actually the aggregate demand was not increasing because of the local currency credit but because of forex credit and this was a by-product which I never realized was so to say poisoning when we privatized the state-owned banks. Then for emerging small open economy emerging economy and being in Europe we had to use different instruments we had not to be dogmatic and up to now we were at the least reaching both the price stability and financial stability in Romania this kind no bank was supported by the expert with any pen. In Poland you had more or less similar situation at the beginning like in Romania but you actually managed to come out pretty soon and pretty good. What did actually Poland do different from other countries that did succeed actually to come closer to what is Western European life standard than other countries? Well, if I were to stick to monetary policy I would say the following according to whatever textbooks we have a small open economy like Poland which is basically a currency periphery to a great big currency which is Euro we have no capability of pursuing successfully an independent monetary policy. We should not be able to do it we should not control the inflows and outflows of capital we should not control exchange rate movements as to the financial stability which is stability of banks basically this is another tricky issue because in both our countries the ownership of foreign financial institutions is dominant maybe not to the same extent as in the Czech Republic or in the Baltics but still dominant. Well, fortunately the world is not like theoretical models and we have a lot of leeway both to choose the level and dynamics of interest rates on the one hand to prevent unwanted inflows and outflows of capital okay not ideally we have suffered from an inflow of capital in the way of carry trade feeding foreign exchange loans which Switzerland has its own share in this but we also managed to keep relatively stable and exactly because it's a floating exchange regime but this is the monetary policy if we were to answer your question in a broader sense what did Poland do differently I don't think we did anything so different from say Romania or most countries in the region what we did is basically we ascribed to become the member of the European Union as early as 1991 now only we realize how exotic it must have sounded to our partners like Jakob and Jean-Claude Tricello but we treated Akikominotter very seriously from the very beginning of the changes and well we imposed on ourselves the rules of the game we reformed after 15 years of reforms it brought fruits is it actually an exotic thing to take is it exotic to take a treaty seriously is it exotic in Europe to take this treaty seriously was it like this which treaty I mean the rules that you accepted you accepted the rules of the European community you did actually what you had to do in a way but if you look at the history of Euro you had many countries or at least one no let's say five countries at least that didn't actually do what they should do under the treaty of the European stability but is this something that we have to accept in the future too or is this gonna be different it's very clear that in the case of Poland as Marek explained very well and he has himself the I would say multi-ocular vision of somebody who has been minister of finance prime minister and prime minister of Poland as well as central bankers so when you speak on these structural reforms it reminds me all the courage which was needed to go through it respecting the rules because it was accelerating the Aki community now to respond to the governance of the Euro area which is of a different nature the Aki region is concentrating on governance of the Euro area it's absolutely clear that it was an enormous mistake in my opinion for France and Germany to give credit to the idea that the stability and growth pact should not be respected and it was their position in 2003-2004 under the chairmanship of Italy to be frank three big countries were allied to say well finally the stability and growth pact does not deserve to be respected I think it was the most dramatic mistake which was made in terms of governance of the Euro area I was just appointed myself president of the ECB and my first speech in the European Parliament was to say the stability and growth pact is integral part of the single currency area we were very bold we decided to have a single currency without having a federal government a political federation, a federal budget so the framework, the fiscal framework is absolutely key very unfortunately it was not the position of neither the big countries nor finally the council and we even if we saved a large part of the letter of this stability and growth pact we lost the spirit of the pact that being said it's not the only problem we also in the ECB discovered that there was no real monitoring of the competitiveness indicator inside the Euro area and of course in the crisis we discovered that the absence of banking union was a big big drawback for the Euro area as a whole so that we have now as a lesson from the crisis reinforced the stability and growth pact and I take it that it has to be respected we are in a single currency area we paid a terrible price for not respecting the framework the framework is there it's been reinforced in the crisis it has to be respected second we have now the MIP the macroeconomic imbalance procedure which is a second pillar for governance we concentrate on competitive indicators domestic and external imbalances including current account imbalances inside the Euro area it is in my opinion as important as the stability and growth pact MIP as important as SGP and we have now the banking union so two new pillars for the governance of the Euro area have been created in the crisis as a lesson drawn from the crisis as I already said I think this of course new pillars of governance have to be fully applied implemented and respected and that being said we need as I said to reinforce the executive branch I'm for a minister of finance and a ministry of finance of the Euro area not only to care for the governance the fiscal, the economic and financial governance of the Euro area but also to represent the Euro area in the international institutions and I take it also that we must have a more assertive European parliament in the format of the MPs that are representing the Euro area in order to be sure that we have a I would say last world which is given in a manner which would be unchallengeable democratically when we have very difficult problems to solve for instance conflict between Greece and the European institutions and other problems of that kind so we have still a lot of hard work to do but first let's apply what we just decided Mr. Frankel you actually looking at this probably more from a point of view from the outside probably from an American point of view and if you ask actually people in the US they never really understand this how the Europeans tried to manage crisis with stability pact and everything they always said this is never going to work and at the end they have been right it didn't work so the European bank did do something else what do you think about this statements of Mr. Trichet now well you asked the wrong person because I am known as somebody who normally agrees so much with Mr. Trichet so you will not be able to put a wedge here I must say and this was my first remark that I think that the European project in historical dimensions is one of the biggest projects that modern humanity has been there because it has much wider implications much beyond currencies it has remember the context in which it was all initiated in the post-world war second world war so of course there were skepticisms there are those who are still skeptic but with the passage of time people now know that this is part of the scenery it's not something that the scenery will change although the windows will be polished and maybe some paint will be added let me return however to the subject that you started before because we are all full of praise and properly so to the initial response to the crisis where central banks and governments were really in a way to save the day but like all medicines there are two elements to medicines first there are diminishing returns QE1 was extremely effective QE2 was effective but a little less than QE1 QE3 was effective but at least a little bit less than QE2 etc we have had a situation where interest rates have been now close to zero for a very long period of time there was a good reason at the beginning and now is the time to ask are there unintended consequences that we need to prevent in order to indeed secure that saving the system is a permanent fixture there is more and more understanding and realization that much of the debate about normalization was about the cost of normalization and of course if you discuss the cost of normalization the tendency is let's delay it because there is cost I think that a more balanced discussion today should also be the cost of delayed normalization what are the typical costs because in the modern era financial markets are so important and yields are close to zero it provides incentives for everyone to look for yields elsewhere and as you look for yields elsewhere you typically end up in a situation that are more risky higher yields goes with higher risk and normally it will come from areas that are less regulated so from the system perspective you have a little bit of a higher risk we also know that assets especially in the housing market are artificially inflated if interest rates are too low for too long bubbles typically happen when interest rates are low not when interest rates are high so those are all well known facts but it also says that if you feel that the economy is normalizing then it's a good time to say policies should be normalizing I can speak about the US and that's not a secret the US Federal Reserve has said very clearly there are three elements that we look at in order to decide what to do element number one is what happens to growth well on this one growth has improved significantly there is no question that growth in the US has been resumed is it going to be less growth in the previous decade? of course, hopefully so because the past growth was not healthy growth so I think that on the growth part you can tick the box and say ready to normalize the second criterion is labor markets we have had 10% unemployment few years ago we now have in the US 5% unemployment the duration of unemployment is diminishing labor force participation of course is a little low but by and large all the results that looking at labor markets convinced most observers that you can tick the box and say ready to normalize the third element that they look at is what happens to wage and price pressures their current inflation is still very low although even yesterday the numbers show a little bit of an upper tick but as central bankers they do not need to look at inflation today which measures events of yesterday they need to look at inflation tomorrow a lot of arguments were made that one of the reasons for the currently low price inflation in the US is reflecting a very sharp fall in commodity prices which is spreading itself over time but will evaporate a sharp change in the US dollar which is also temporary by its nature and it's already correcting so when all is said and done they feel many of them that on the third box inflationary pressure wage pressures either neutral or ready to go and this is why everyone talks about December as the change let me tell you one point when we meet here next year and we will discuss the rate rise of the US whether it was in December or next February or last September history is not going to change by that that's not critical we are talking about 25 basis point when you start around zero distance from the long term but the issue is a strategy and what the US is talking about is when should be the start of a journey they do not hesitate of raising interest rates by 25 basis point but they do and properly so ask is this the time to start the journey because we are talking about a sequence of gradual rises over some time I think that there is more and more discussion about this coming December it's probably going to be a correct decision but the issue is it reflects a shift from discussion from cost of normalization to cost of delayed normalization and finding the balance what do you think from a European perspective do you think there should be a rise of interest in Europe too? well I am not sure I must jump in it's easier to speak as a former central bank than as a current central bank and Mark Benka always have very strict answers and clear so if you don't see a clear answer it is because he is a current central bank but I am going to provide a clear answer as far as the interest perspective interest rate increase in the US we are not overly impressed we are waiting for this as a matter of fact we think that the procrastination is probably more destabilizing even on those countries that are probably more fragile than we are than the actual increase so I referred to this in my previous presentation that we managed to defend the country from excessive inflows and outflows there was no really a big inflow of capital as a consequence of quantitative easing in America so we are not expecting a big outflow if this is the sign of better economic health in the US then why should we be afraid of it? what about in Europe? in Europe should we rise the interest rate too? well well well here we have a slightly different situation number one I am not sure whether this would reflect properly the official view of the ECB neither I will ask aren't we sure to do it but I understand that the Europeans should not ignore the phenomenon of low flation or deflation we in Poland we are currently minus 0.7 inflation whatever negative inflation but nobody is really moved about it because wages are growing the entrepreneurs the companies are not complaining well the only person that complains with good reason is the minister of finance but if I look at the situation in the eurozone and the necessity to correct imbalances to correct for divergence for some cases of divergence which are now mitigated as a matter of fact then deflation or very low inflation may be detrimental to this and I think well it's quite justified for the ECB to be afraid of this and act against it well it's raising interests where it doesn't matter for you but not raising them at home is this your position too Mr Fischer? well can I reciprocate and ask whether you would call for an increase of rates in Switzerland where the rates are at minus 0.75 families so no I mean it's absolutely normal that the central banks are concentrating on their own problem the issues and the challenges in the United States are very different obviously at the present moment from the issues that we have we are very united on the medium long term goal and by the way we have the same definition of price stability on both sides of the Atlantic now but of course the cycle is not the same the level of pressure on future inflation is not the same and it's absolutely clear that it is normal to have divergences in the day-to-day decisions that are taken on both sides of the Atlantic I certainly not spouse any remark of the kind it's a drama we will have divergences in the monetary policy of the major central banks it's normal that you have divergences in the day-to-day decisions or even in the cycle but of course provided you have a great deal of unity on the medium long term goal which is the case obviously but we actually have a phenomenon that is kind of strange we don't have I mean one of the fundamental part of capitalism is actually interest and there is no interest anymore is this actually just it just doesn't matter no it matters a lot and it is the reflection of abnormal functioning of our economies and particularly in the advanced economy we have a very very deep degree of abnormal functioning and then the reason why we call the other partners to do their job because again it's very abnormal for central banks to be up to their responsibility in maintaining zero rates over a very long period of time and it is the case in all advanced economies there has been there really not surprisingly perhaps because we had the worst crisis in the advanced economy again since World War II and perhaps World War I so we are still in the shadow of a very very abnormal functioning of our economy so it's very abnormal as said Jacob there are a lot of unintended consequences both of the zero rates and of the I would say unconventional measures which by the way are QE on the one hand you have the quantitative unconventional measures you have also the off balance sheet commitments seen from you know maybe a very long distance you could say at a time but the ECB is not doing as much as the Fed because you were looking at the size of the balance sheet but the ECB always had since the very beginning of the crisis off balance sheet commitments full allotment of all liquidity which is asked by the commercial banks at fixed rate and the OMT the OMT is an off balance sheet commitment to purchase treasuries if need be and if there is the appropriate conditionality it's not in the balance sheet but it's a very powerful commitment I mentioned that because it's very often forgotten by the external observers but if you look at governments I mean they have their debts and they have their off balance sheet debts and it's very comfortable for them to have more or less zero or even below an interest rate is actually too much pressure on national banks from the politics that just to do nothing and just to go on like this what is the situation in Romania I mean that first of all let me tell you that negative interest rates is not across the Europe Poland is not in Romania we have also negative inflation is pretty important is more than minus one but the policy rate is 1.7% that in real terms I could say that have positive real interest rates and not very low but we are not in the core of Europe on the border of Europe and we have to look to the capital flows as I said before and to say also to the exchange rate and what I could say that there is still room for reducing looking to the inflation to reducing the interest rate and keeping the interest rate pretty positive but we try to avoid exactly to avoid the problems which Jean-Claude said before and more than this we are not afraid of deflation in other countries because we have seen that wages increasing very pretty rapidly the domestic demand increase also pretty rapidly that the industrial production in general the GDP increase by between 3% and 4% that is not a clear sign of any deflation here that the peculiarity of several countries in Europe is important to take in view where we are looking particularly is not exactly what America will do, the Fed will do we are looking particularly what the European Central Bank is going to do in the future and particularly the peer countries we are looking to Poland, Central Bank of Poland Central Bank of Hungary and a short comment on the capital movement here there is a volatility as I have seen it and there is also less predictability it's very difficult to predict what is the capital movement I recall last year in the beginning of 2014 when there were some financial turbulences in Turkey the impact on Romania was pretty large capital outflows and pressures for depreciating currency when the Ukrainian crisis erupted we did expect the same to happen it was not, it was totally contrary we have seen large capital inflows and the large pressure for appreciating the local currency perhaps migratory capital were getting out from Ukraine, from Russia and moving Romania that to end my short presentation to look only to the inflation if it's negative or not or the fear of deflation small open economy is not enough I just hear from all these Europeans I hear why we shouldn't actually do anything on interest rates are they all afraid? what do you think? they're not afraid as was indicated Europe is in a different phase of the cycle the US started its actions early on Europe started its actions a bit later so we are now in a situation that if we want convergence for a while they will move in opposite directions while the US is discussing tightening Europe still is discussing expanding but there is no question that all of those are still unconventional measures and they are not yet the normal measures Jean Claude said properly so growth in Europe will not take place only by the ECB so yes we discuss about the ECB but we eventually want to aim at sustainable growth and that's why the message is again to governments and about structural measures the more if you really want to enhance normalization of interest rate policy you must make sure that the economy is more flexible a more flexible economy requires structural measures that will bring it about now the European Central Bank has in a much much tougher job than the Federal Reserve the governments is bringing together representatives from so many countries although officially they leave their passports at home when they come to the ECB and they all become senior members of the European Central Bank but they come from countries with different political settings but structural policies are there so I am much more patient with the ECB and its challenges than with the Fed and I think that's why we will see for normalization much faster than the ECB okay now I think we are getting close to the end of the discussion maybe we can open for the public is there are there any questions here yes here in the front microphone I'm Meshitry from Israel the chance that we have four presidents of banks it is I didn't hear an answer I mean a clear answer about the interest rate the situation in which in which the interest rate is keeping zero or minus is creating a lot of damages in the economy of country speaking in my country the fact that the zero that we have zero interest rate create a big problem that we are sending most of the people to draw up to draw from the banks all their savings and put it in the stock market and you know in stock market the people who lose the money are the poor people because they don't know what to do with their money and the only way to do they went with the money to certain brokers using the stock market as a chance or the other advice other people who have money which they are taking matter of fact as Jakob said risk is higher also profit could be higher and one last thing I see that in this situation at least in my country the president of the bank of Israel during the last years buying something like between 70 to 80 billion dollars from the market in order to try to influence the rate the exchange rate between 70 to 80 percent I personally think that it is stupidity I don't think it's right we cannot really influence she is the lady I cannot agree with them of course I think that we are losing during this time after five or six years of buying dollars in our market the dollar had been changed a lot the exchange rate stays almost the same without any change in the meantime the market created in my opinion a lot of damages I would really asking you why are you waiting for the Federal Reserve in order to raise the interest rate why can't we cannot raise it for itself if you think it's good thing to be done why are you waiting for the Federal Reserve we are not the Federal Reserve and we all expect that the Federal Reserve will increase rates obviously because they have pre-announced to the market that it was they were really having all their options open and it's clear that the market is now understanding that it is very likely but they cannot say we are sure 100 percent to do that because no central bank would never say that but it's very well prepared and pre-announced frankly speaking for the rest I would only say under the control of Jacob for the rest of the week having been the governor the central banks are not happy with what they do what they do is because it's necessary under circumstances that are made horrible by the other partners governments, parliaments and I have also to say private sector in some respect hopefully this is the last year we are really talking now about the US literally moving to the to the exit but you do bring an important issue that we cannot open now but there is really a very different set of considerations when it comes to two giant central banks like the Federal Reserve and the European Central Bank versus the considerations to three they need to decide do they hook themselves to one of the large countries do they just become unguided missile in the space I assume that in Israel one of the considerations is the fear of lost competitiveness that if you raise your rate alone your currency will appreciate and this is another consideration hopefully the big boys will act together and then your question will be redundant what are the limits of the central bank in the economic development of the country that is my first question my second question to Mr. Trichet and the next there are countries of the European community who do not have the euro but they do have the euro but they do have the euro which do not have the euro as a currency and there are countries who do not have the euro as a currency for example the Montenegrin what are the conditions for a country that does not belong to the European Union to have a currency as a national currency thank you you are going to take the first question well in the case of Poland which is not unusual for the whole Europe our mandate is clear we have to be the guardian of stability of the currency meaning low inflation we defined it as 2.5% slightly above what the ECB has to do if it does not contradict with the main job of the of the national bank it has to support the policy of the government what does it really mean in practice the constitution prohibits the central bank in Poland to directly finance state expenditure sumto what we can do is we can indirectly help financing growth but on the secondary market it's exactly what the ECB is now doing it basically and we have all the instruments to do it there is no problem really the only difference between a country like Poland like Romania and the European the Eurozone is that the banks are over liquid and in the in 2008 so when the crisis erupted central bank of Poland proposed or offered to the commercial banks instruments very similar to the LTRO nobody showed up zero interest well but that you have to work years to have such a situation we have the same to say mandate for price stability in Romania like any central banks of the European system of the central banks then more or less my answer is like in the case of what we added in the last year was a little bit more about financial stability also related to our functions but also through a special committee where there are both the central bank, minister of finance and the other to say institution which is covering the supervision of the non banking sector is a kind of replica of European board for the systemic risk that gradually we are putting into our mandate also the role for the financial stability maybe the second question and then one more last question from the public I will answer in French the question was in French about a country which is not a member of the European Union or even who is a member of the European Union and who wants to have the euro as its own currency it is a decision which is possible which has been taken as you noted by a small number of countries it can cover different forms it can be a pure euro it can be the case of a 46 board but in any case it is a unilateral decision of the country in question it is he who takes this decision exactly as some countries in Latin America have the dollar by their own will and until now in any case certainly in my memory of my time we have never considered that it forced us to some attitudes that it was always we have always considered that it was totally unilateral it has relatively important consequences because as you know to enter the euro you have to fill a certain number of conditions and among these conditions there is the stability of the currency in the context of the mechanism of change if obviously we have a currency board which completely relies on the national currency at the euro we have a sort of automatic stability in some way and so it is the reason for which we hold that the responsibility is entirely taken by the country in question without the implication of the European Central Bank or by the way of the European institutions for the rest I would note that the LTRO target of the Central Bank which in fact has to facilitate some sectors of Montan and the time of Mario we had three programs two of Montan, one of the time of Mario of Covert Bonds where we buy obligations guaranteed and there also we are obviously present of an operation which helps some sectors in particular but it is also true that all these operations in any case in the advanced countries are born with the crisis and that they have just been considered abnormal before the crisis I am Krishan Jindal from India there is a large population in developing countries which is financially excluded good number of families they do not have accounts with the banking system this is a major challenge before the governments for addressing poverty and employment generation etc and then there are certain sectors which are systemically very important and banks are not able to sort of take care of such sectors in terms of providing credit etc so my question to the panelist what could be the role of central banks in such scenario as a matter of fact this is a problem that we see also in say less advanced countries of Europe like Poland we also have a sizable part of the population that does not participate in the financial life so to say and well our work here is the following number one we try to limit the cost of access to banks to electronic currency we are very much helped by the European Commission because it is on the initiative of the European Commission that we are introducing now so called free of charge basic bank accounts which we hope will encourage some of the people to become customers but having said this banks commercial banks are not always the best partners to serve micro micro enterprises for this we need very diversified banking or financial sector I don't believe that the banking sectors should be exclusively dominated by giants we need small banks we need specific let's say micro lending institutions and again we feel support from Brussels there are regional lending schemes especially dedicated to very small enterprises I'm not sure that they work properly but this is the way that that we deal in Europe and also in Poland and we have central banks it's really to make it more popular and make people aware of this okay thank you maybe one last word from somebody of a financial giant just on this question in fact the the country that you come from is used now as the role model of how to deal with these matters micro finance programs how to advance financial literacy programs so this is something while the central bank cannot do it itself it can support these kind of activities and I heard recently a report from the governor of the Reserve Bank of India our good friend Ragu Rajan and from the minister describing the way in which in fact they almost forced millions and millions of people to have bank accounts by depositing their various allowances the subsidies etc into newly created bank accounts and therefore habits became started to get formed it's not a simple thing this is the kind of thing we should not however understand this mandate as reducing the safety of the banking system the best way that central bank can serve the population is to secure the safety of the banking system and having said this there is an issue of information and education and literacy thank you very much