 Good afternoon, and thank you all for joining us. My name is Thierry Bracke. I'm Deputy Director General Communications at the ECB, and it is my great pleasure to welcome you to the Seventh ECB Forum on Central Banking. Over the next two days, we'll be discussing the role and policies of central banks in a shifting world. I will go into some further details on the program later, but now, without further ado, let me give the floor to President Lagarde for her introductory speech. Thank you very much, Thierry. And let me begin by welcoming all of you to this year's ECB Forum on Central Banking. Much to our regret, we cannot be together in Cintra this time, but I trust that thanks to the great work that has been done behind the scene with this virtual environment, it will be no less conducive to challenging ideas and productive debates. The purpose of this year's conference is to examine the challenges facing central banking in a shifting world. We will be discussing many of the long-term trends monetary policy has to contend with, including shifting patterns of globalization, climate change, and a lower natural interest rate. Actually, the largest shift central banks are facing today may well turn out to be the pandemic itself. As John Galbreath said, the enemy of the conventional wisdom is not ideas, but the march of events. And the events we are seeing today are momentous. The coronavirus has produced a highly unusual recession and is likely to give rise to a similar unsteady recovery. So today, I would like to talk about how the ECB's monetary policy has responded to this unique environment and how we can best contribute to supporting the economy going forward. The deliberate shutdown of the economy triggered by COVID-19 pandemic has produced a highly unusual recession. Most importantly, it has infiltrated and crippled sectors that are normally less sensitive to the economic cycle. In a regular recession, manufacturing and construction are typically hit harder by the side-click or downturn while services are more resilient. But during the lockdown in the spring, we saw the reverse. Compare our experience in the first half of this year with the first six months following the lemon-lemon crash. After lemon, manufacturing contributed 2.8 percentage points to the recession and services contributed 1.7%. But this year, the loss was 9.7% for services and much less 3.2% for manufacturing. This has three important implications. First, research finds that the recovery from a services-led recession tends to be slower than from a durable goods-led recession as services create less pent-up demand than consumer goods. For example, people are unlikely to take twice as many holidays abroad next year to compensate for their lack of foreign travel this year. Second, as services are more labor-intensive, services-led recessions have an outsized effect on jobs. Five million people in the Eur area lost their jobs in the first half of this year. And of those, almost half, half worked in retail and wholesale trade, accommodation and food services and transportation. Despite these activities representing less than one-fifth of output, half job loss, one-fifth output. In the six months after lemon, the worst affected sector, that is the industry, suffered only 900,000 jobs. So large impact, disproportionate impact. And third, these job losses hurt socioeconomic groups unevenly. In the first half of 2020, the labor force contracted by almost 7% for people with low skills who typically have lower income, while it failed by 5.4% for those with medium skills and rose by 3.3% for those with high skills. This is double the loss of low-skilled jobs we saw in the six months after lemon. In addition to their social impact, job losses for people with lower incomes present a particular threat to the economy because around half of those at the bottom of the income scale face liquidity constraints and therefore consume more of their income. The labor intensity of the worst-hit sectors also heightens the risk of hysteresis and scarring in the labor market. Now, while job retention schemes have played a key role in mitigating these risks, they could not eliminate them entirely. And even though many workers quickly returned to regular employment once the restrictions were lifted, a large number of people who lost their jobs in the spring left the labor force and stopped looking for work with 3.2 million workers classified as, I quote, discouraged. This is so far different from the post-lemon period when the drop in employment was matched by a rise in unemployment, not discouragement. And young people have been particularly affected seeing disproportionate layoffs and delayed entry into the labor market. Research finds that this can have a variety of long-lasting effects, including lower earnings, even 10 to 15 years later and worse, future health conditions. So from the outset, this unusual recession has posed exceptionally high risks. And that is why an exceptional policy response has been required. And what has defined this policy response in Europe in particular is the policy mix. Learning the lessons from the last decade, there has been a renewed consensus that the composition of policies matters for overcoming the crisis. More than ever before, macroeconomic, supervisory and regulatory authorities have dovetailed and made each other's efforts more powerful. So what has this meant for monetary policy? I think there are two main ways in which we have adopted the ECB's policy to the pandemic. We are the design of our tools and the other transmission of our monetary policy. First of all, we have responded to the unique features of the recession by designing a set of tools specifically tailored to the nature of the shock, including recalibrating our targeted, longer-term refinancing operations, teltrose, expanding eligible collateral and launching a new 1.35 trillion pandemic emergency purchase program, our PEP. I will call it our PEP. The PEP in particular has the dual function of stabilizing financial markets and contributing to easing the overall monetary policy stance, thereby helping to offset the downward impact of the pandemic on the projected path of inflation. The stabilization function of the PEP is ensured by its flexibility, which is crucial given the unpredictable course of the pandemic and its uneven impact across economies. In this context, the PEP's flexibility allows us to react in a targeted way and counter fragmentation risks. This was key in reversing the tightening of financing conditions that we saw in the early days of the crisis. In parallel, the stance function of the PEP gives us the scope to counter the pandemic-driven shock to the path of inflation, a path that has also been greatly influenced by the specific characteristics of this recession. Not only has inflation fallen into negative territory, but we have already seen services inflation, which is normally the more stable part of the price index, dropped to historic lows. But the PEP, together with the other measures we have taken this year, has provided crucial support to the inflation path and prevented a much larger disinflationary shock. And its impact has been amplified by interactions with other policies. For instance, the combined effect of the ECB's monetary and supervisory measures is estimated to have saved more than one million jobs. At the same time, the nature of the pandemic also affects the transmission of monetary policy. In normal times, normally, an easing of financing conditions boosts demand by encouraging firms to borrow and invest and encouraging households to bring forward future income and consume more. In turbulent times, monetary policy interventions also eliminate excess risk pricing from the markets. But these are not normal times. When interest rates are already low and private demand is constrained by design, as it is the case today, the transmission from financing conditions to private spending might be attenuated. This is especially true when firms and households face very high levels of uncertainty, leading to higher precautionary saving and deferred investment. In these circumstances, it is crucial that monetary policy ensures favorable financing conditions for the whole economy, private and public sectors alike. And indeed, these are the times when fiscal policy has the greatest impact for at least two reasons. Let me take you through those two reasons. First, fiscal policy can respond in a much more targeted way to the parts of the economy affected by health restrictions. Research shows that while monetary policy can increase overall activity in this environment, it cannot support the specific sectors that would be most welfare enhancing. Fiscal policies, on the other hand, can directly respond where help is most needed. We have seen the efficacy of this, of such targeting in the euro area this year. The ECB Consumer Expectations Survey shows that households with lower income have seen a greater reduction in the hours they work. But they have also received a higher share of government support. As a result, while compensation of employees fell by more than 7% in the second quarter of 2020, household disposable income fell by only 3% because government transfers compensated for that loss of income. Second, fiscal policy can break paradox of thrift dynamics in the private sector when uncertainty is present. Public expenditure in the euro area accounts for around 50% of total spending and can therefore act as a coordination device for the other 50%. Our Consumer Survey demonstrates this. It shows that people who consider government support to be more adequately displayed less precautionary behavior. And in this way, by brightening economic prospects for firms and households, fiscal policy can help reinvigorate monetary transmission through the private sector. But regrettably, the economic recovery from the pandemic emergency could well be bumpy. We are seeing a strong resurgence of the virus, and this has introduced a new dynamic. While the latest news on a vaccine looks encouraging, we could still face recurring cycles of accelerating viral spread and tightening restrictions until widespread immunity is achieved. So the recovery may not be linear, but rather unsteady, stop-start and contingent on the pace of vaccine rollout. In the interim, output in the services sector may struggle to fully recover. Indeed, services were already showing a declining trend before the latest round of restrictions. The services PMI fell from 54.7 in July to 46.9 in October. And while manufacturing has so far remained relatively resilient, particularly in some countries, there is a risk of the recovery in manufacturing also slowing once order backlogs are run down, and industrial output becomes better aligned with demand. So in this situation, the key challenge for policymakers will be to bridge the gap until vaccination is well advanced and the recovery can build on its own momentum. The strength of the rebound in the third quarter suggests that the initial policy response was effective and the capacity of the economy to recover is still in place. But it will require very careful policy management to ensure that this remains the case. Above all, we must ensure that this exceptional downturn remains just that exceptional and does not turn into a more conventional recession that feeds on itself. Even if this second wave of the virus proves to be less intense, than the first, it poses no less danger to the economy. In particular, if the public no longer sees the pandemic as a one-off event, we could see more lasting changes in behavior than during the first wave. Households could become more fearful about the future and as a result, increase their precautionary saving. Firms that have survived up to now by increasing borrowing, drawing on their savings could decide that remaining open no longer makes business sense. This could trigger a firm exit multiplier where the closure of businesses faced with health restrictions cuts demand for complementary businesses in turn causing those firms to reduce the output. And if that were to happen, the recession could percolate through the economy to sectors not directly affected by the pandemic and potentially trigger a feedback loop between the real economy and the financial sector. Banks might start tightening credit standards in the belief that corporate credit worthiness is deteriorating, leading to firms becoming less willing or able to borrow funds, credit growth slowing and banks risk perceptions rising further. The ECB's bank lending server is already signaling a possible tightening in the months to come. We are also seeing indications that small and medium sized firms are expecting their access to finance to deteriorate. So a continued powerful and targeted policy response is vital to protect the economy at least until the health emergency passes. Concerns about zombification or impeding creative destruction are misplaced, especially if a vaccine is now in sight. Let's remember that lockdowns are a non economic shock that affects productive and unproductive firms indiscriminately. Policies that protect viable businesses until activity can return to normal will help all our productive capacity, not harm it. The right policy mix is essential. Fiscal policy has to remain at the core of the stabilization effort. The draft budgetary plans suggest that fiscal support next year will be significant and broadly similar to this year. And the next generation EU package should become operational without delay. Actually, yesterday was a good day for Europe. The European Parliament and the Council agreed on the next multi annual financial framework and new own resources. It is good to see that the majority of the pieces of the budgetary puzzle are beginning to fall in place. We need to make sure that also the other pieces, in particular the legislation for the recovery and resilience facility fall astute and the overall agreement is then successfully endorsed by the Council and the Parliament. In parallel, supervisory authorities are working to ensure that banks can continue to support the recovery by readying them for a potential deterioration in asset quality. And structural policies have to be stepped up so that policy support can accompany the wide ranging changes that the pandemic will bring, such as accelerating spread of digitalisation and a renewed focus on climate issues. So what is the role of monetary policy in this response? It is clear that downside risks to the economy have increased. The impact of the pandemic is now likely to continue to weigh on economic activities well into 2021. Moreover, demand weakness and economic slag are weighing on inflation, which is expected to remain in negative territory for longer than previously thought. This is partially due to temporary factors, but the fall in measures of underlying inflation also appears to be connected to the weakening of activity. And development in the exchange rate in the exchange rate may have a negative impact on the path of inflation. So continued policy support is necessary to achieve our inflation aim. But we should also consider how best to provide that support. The unusual nature of the recession and the unsteadiness of the recovery make assessing the inflation path harder than in normal times. Shifts in consumption baskets caused by supply-side restrictions are creating significant noise in the inflation data. And the stop-start nature of the recovery means the short-term path of inflation is surrounded by considerable uncertainty. In these conditions, it is vital that monetary policy underpins inflation dynamics by supporting demand and preventing second round effects where the negative pandemic shock to inflation feeds into wage and price setting and becomes persistent. To that end, the best contribution monetary policy can make is to ensure favorable financing conditions for the whole economy. Two considerations are important here. First, while fiscal policy is active in supporting the economy, monetary policy has to minimize any crowding out effects that might create negative spillovers for households and firms. Otherwise, increasing fiscal interventions could put upward pressure on market interest rates and crowd out private investors with a detrimental effect on private demand. Second, monetary policy has to continue supporting the banking sector to secure policy transmission and prevent adverse feedback loops from emerging. Firms are still dependent on new flows of credit. And those that have borrowed heavily so far need certainty that refinancing will remain available on attractive terms in order to avoid excessive deleveraging. In other words, when thinking about favorable financing conditions, what matters is not only the level of financing conditions, but the duration of policy support too. All sectors of the economy need to have confidence that financing conditions will remain exceptionally favorable for as long as needed, especially as the economic impact of the pandemic will now extend well into next year. Currently, all conditions are in place for both the public and private sectors to take the necessary measures. The GDP weighted sovereign yield curve is in negative territory up to 10 year maturity and nearly all euro area countries have negative yields up to five years maturity. Bank lending rates are close to the historic lows around 1.5 percent for corporates, 1.4 percent for mortgages. And our forward guidance on our asset purchase programs and interest rates provides clarity on the future path of interest rates. But it is important to ensure that financing conditions remain favorable. And this is why the governing council announced last month that we will recalibrate our instruments as appropriate to respond to the unfolding situation. The council is unanimous in its commitment to ensure that financing conditions remain favorable to support economic activity and counteract the negative impact of the pandemic on the projected inflation path. In the weeks to come, we will have more information on which to base our decision about this recalibration, including more evidence on the success of the new lockdown measures in containing the virus, a new set of macroeconomic projections and more clarity on fiscal plans and the prospects for vaccine rollouts. While all options are on the table, the PEP and TELTROS have proven the effectiveness in the current environment and can be dynamically adjusted to react to how the pandemic evolves. They are therefore likely to remain the main tools for adjusting our monetary policy. Looking beyond our next policy meeting, our ongoing strategy review gives us an opportunity to reflect on the best combination of tools to deliver financing conditions at the appropriate level, how those tools should be implemented and what features our toolkit needs to have to deliver on such a strategy. Let me conclude. The pandemic has produced an unusual recession and will likely generate an unsteady recovery. All policy areas in Europe have responded promptly and decisively. The European policy mix has proven that when different authorities work together within their respective mandates, countries can successfully absorb the pandemic shock. The second wave of COVID-19 presents new challenges and risks, but the blueprint for managing it is the same. The ECB was there for the first wave. The ECB will be there for the second wave. We are and we continue to be totally committed to supporting the people of Europe. In pursuit of our mandate, we will continue to deliver the financing conditions necessary to protect the economy from the impact of the pandemic. This is the precondition for stabilizing aggregate demand and securing the return of inflation to our aim. I thank you all for your attention and I promise that we will meet again and hopefully in Sintra. Thank you.