 Thank you, Peter, for all the suggestions. So far this morning in this topic of the first 20 years of Economic and Monetary Union, we've had two, I think, very rich presentations about DCB's monetary policy. And we've also had the very interesting presentation by John and the discussion by Schebnam on convergence. So no doubt in this panel we'll return to these topics, but my guess is we'll also visit many other topics in this very broad agenda about economic and monetary union. I think when we have a calendar like 20 years, I think there's always going to be three parts to the discussion. One is understanding what actually happened. Two is think about the counterfactual of what would have happened with the euro but with a different institutional framework. And then the third, of course, always is what would have happened without the euro. And in the President's speech earlier on, the counterfactual of life without the euro is always interesting to think about. Of course, there's also the temptation given the euro was found 20 years ago to say everything that happened in the last 20 years was due to the euro. So part of the challenge for the panel will be to differentiate between all of the events that happened, whether that's the rise of emerging markets like China, whether it's the global financial cycle including the crisis, whether it's the role of demography and technology driving the low movement in the R-star, whether it's the change in the European Union through the entry of new member states, or whether even it's just simply the spectacular rise and fall and rise and fall in a price of oil which is really lurking behind a lot of the monetary policy discussion. So by 1 p.m. all of this would be sorted out by this exceptional panel. So the format is each of the other panelists will make an initial short presentation and they've all been very, they've given me exact timing of their interventions. So then we'll have a discussion including I hope many interesting questions from the floor. So Laurent, over to you. Thanks. Thanks. It's obviously super difficult to talk about after Peter, both because of the depth of the analysis and because he's got so many anecdotes and an incredible talent for speaking. So I will be a lot shorter and that will be one difference. And what I will try to you leveraging on what you've presented us is make a distinction between what we can ascribe to policy in terms of performance and how this is to be distinguished from the institutional framework. So I will pass over this very quickly but just to say I think it's very important that we make this difference because we won't correct policy mistakes with reform to institution and conversely we'll not be able to make better policies when the real issue is about institution. So I will go through the real fiscal, monetary and financial aspect and let me start with the real one. But I just wanted to say that in terms of trying to close the gap with the U.S., it has been a challenge and a lot has been said about the first ten years of the euro so I won't get into there. But what I would like to highlight is how much it has the gap with the 9 OECD best performing countries which are not in the euro has stabilized and that's probably highlighting a lack of structural reforms even so there were quite a lot of efforts during the crisis. And one of the main tool actually that was designed at the beginning of EMU for adjustment was real adjustment and that's the first point I would like to make is when you look at this slide you can see that the countries which had wider deficit or widening deficit in the first ten years of the euro actually undertook a very strong wage price adjustment and corrected this current account imbalance. But conversely we could say that it was very much one sided because the countries that had expanded current account surplus have not gone through the same type of adjustment and actually the wage price evolution has been much more muted. So the first thing is we were relying a lot on this wage price adjustment in a currency union and I think it's fair to say that it's been at best one sided. Second thing is going to fiscal policy and a lot has been said here so I will focus on a few points but one very positive one is in 2009 do you like the US actually and in the EU especially there was a concerted effort for a very large synchronized stimulus and that shows that the EU can really act with force when it decides to do so. Then we enter the period of the fiscal tightening that Peter mentioned and I think we should acknowledge that it was in part largely explained by the sequence of sovereign downgrades that we were going through. So obviously with the benefit of insight it was a synchronized mistake on both sides of the Atlantic given where the output gap were but perhaps what was more specific to the EU was that the adjustment took place while the output gap was still widening whereas if you look at the US on the right hand side the output gap was already shrinking or started to shrink. And I think part of the reason is that in the Euro area the adjustment was ruled at the individual country level and did not take into account spillovers that would form a Euro area wide stance. A lot has been said about the rules and how they constraint the individual country adjustment and a lot more will be said by the panel so I won't get into this because what I really want to focus on is the coordination and reforming the rules will actually not address this issue of coordination which in turn and Peter mentioned it as well as Olivier yesterday has hindered stabilization. When some countries lack fiscal space and when the economy is weak a Euro area fiscal stance which is exclusively driven by rules focusing on individual country situation is very likely to deliver insufficient support. First the overall Euro stance may not be enough to stabilize the Euro area as a whole and even for individual countries it may not be enough because there will be leakages across countries. In addition to this the absence or the lack of coordination increases the likelihood of adverse market reaction and we've seen that in the first part of the crisis and the Jackson Hall speech by Mario Draghi actually mentioned it and conversely obviously if coordination can create fiscal space because it's strengthening confidence in the capacity of the region to address shock and what I'd like to add is not only a Euro fiscal capacity can make coordination simpler but it would also ensure a stabilization response commensurate to the shock or the demand gap. So that's for fiscal policy and let me now move to the monetary part. If I dare given everything that has been said this morning so I will just focus on a very few points. First one liquidity provision I think it's fair to say that the ECB has provided ample liquidity for fill this wall of lander of last resort to banks for various means even so we had the 2013 episode that Peter mentioned. Now from the outside and as a former market participant the SMP did not appear as a nuclear weapon to markets because of the self-imposed size limits ex ante and also because collateral policy was dependent on rating which turned out to be post cyclical and that has contributed to destabilize the sovereign debt market at the time and it took until the summer 2012 that we mentioned several times for the ECB to appear as the pillar of the your area stability. Turning towards more monetary side early in the crisis then Peter mentioned we can say that interest rate hikes again with the benefit of insight were mistake and it took until 2015 for the ECB to move into QE on top of the larger liquidity support and negative rates where the Fed had started QE on a large-scale scale more than four years before. This has several implications but first it means that monetary accommodation was not only early in the US but it was also larger throughout the episode of fiscal tightening and Peter mentioned how the macro framework was a lot tighter in the eurozone. So what what can be the institutional reasons behind this I think one source of delay is consensus building and sometimes even unanimity building and that probably is understandable when when a central bank is as young as what the ECB was but there were signs of distinctions which were reflected in legal cases bought about against the ECB and that was probably not helpful and this may have delayed a large enough consensus for delivering QE. Another source of delay I think was the very complex political relationship with 19 fiscal authorities as opposed to one in the US and you will remember that it took the TSTG for the ECB to move in LTO and it took the package of fiscal compact post banking union plus ESM for the ECB to move into QE. So consensus building as we were saying were necessary especially when the fiscal response was so hesitant and Peter again mentioned the necessity of political support. It's an additional argument why having a fiscal entity responsible for a euro fiscal stance would give a lot more clarity to the central bank in times of crisis and make it a normal interlocutor in most of the times. There's one additional point that we could mention which is that the Fed has actually employment as a second leg or as prominent an objective as inflation and to be fair if the ECB had this objective as prominent as inflation then we would probably our critics would have probably be more tame because this objective has been more than satisfactorily achieved. So that's for monetary policy and now I will move to financial policy which is the third angle of adjustment. Well it has been said before the euro zone banks didn't then clean up their balance sheet and recapitalize as fast as necessary. We just have to remember that some stress tests were passed and a few weeks later they were bank failures. I think one important point as well is that when the new financial regime was voted there was no transition to speed up and help balance sheet cleaning and with the benefit of inside that was an issue and persistently uncover balance sheet of banks today and their low profitability is also a hindrance to monetary policy transmission and again we have still the sovereign bank nexus which which prevails. So looking at the institutional side for financial policy we have to remember that there was no framework for banking union or capital market union until 2012 so that was a big progress but conversely since then progress have stalled. There is no common deposit guarantee or insurance arrangement. There is an incomplete backstop and it's not large enough to avoid national ring fencing. Supervision remains too much linked to the national level for a large part of the banking sector. Macro prudential measures also are too decentralized to enhance a credible unified framework. DSRB has few policy instruments only the power to issue recommendation or warnings. DCB can only use tool that influence lenders behavior not borrowers behavior the later remaining in the hands of national authority. Then capital market unions making little progress and and to be fair in addition to the absence of fiscal risk sharing outside of program then we have very limited private risk sharing. So I was granted sleep age of two minutes so in 15 seconds I'm going to set up what I wanted to say. I think we have to acknowledge that structural national reforms and the European one are necessary but they're probably not sufficient when we are in a period like now and the completion of the single market will not solve our problems. We have to turn towards the other adjustment policy on the macro side. I think the main point is that monetary policy alone cannot actually do the job by itself. It needs the support of a fiscal capacity and a fiscal single interlocutor. That's super important. Also we were with Peter Claude diplomatically the clarification of monetary policy in twenty or three. I think we can safely ask for a review of monetary policy framework now with all the new tools and the evolution of the eurozone For fiscal I think it's super important that we have coordination at the very minimums to complement the individual rule and obviously a euro area budget for stabilization would make everybody's life easier and stabilization more efficient and finally financial policy as you've seen remain too fragmented and here I think there's an enormous task ahead of us the details of which I will spare you. Thank you. Thank you. Next up is Marcus. Thanks a lot for having me back. It's good to be back at Cintra talking about the last 20 years of the euro. So there were a lot of successes in the last 20 years. There was the initial convergence the inclusion also I would like to mention more generally for the European Union of the Eastern and Central European countries and there was price stability like the Deutsche Mark had low inflation but of course there was some regional divergence in inflation rates as well going on in the first decade of the euro. There was huge progress on the banking Union but there are also many challenges left and let me focus a little bit on the challenges and as Peter pointed out I think one big challenge we have to overcome is that which came really aware we became aware in the euro crisis that there are very different ways of thinking how to manage a eurozone or your area and this rein divide which is often referred to as the dividing line how to think about how to manage a macroeconomy became very apparent. So the four dimensions at least is crashing with those rules, solidarity with the reliability principle very much moral hazard focused. Whenever there are financial problems is it a liquidity problem or is it a solvency problem you know do you have to deal with spillovers and bailouts is the right thing to do or do you bail in the Keynesian stimulus and the austerity reform agenda on the other side and I think this is more broadly it's not only Germany and France it's more broadly but it's most pronounced in the way of thinking in Germany and France and most recently and also just came up and the last debate the euro area budget do we need this or do we have to focus much more on risk reduction and there's some big disagreement on this dimensions as well as you know Ecofin just debated in the recent weeks about that and we have to find this little red thing should be find bridges over these the dividing ways of how to run a macroeconomy and I think there are some progress being made on as also the recognition that there's this difference in the way of thinking and that's the first step in order to find some common ground. The other challenge is that we have limited monetary policy space we have this effective lower bound or reversal interest rate if you cut the interest rate below the reversal interest rate it becomes actually it reverses it's how it's not accommodative anymore becomes then contractionary and the question is how low can you go and what determines the effective lower bound and there are different effects and the one in when you cut the interest rate you have the New Keynesian demand effects so you stimulate demand that's a good thing for cutting interest rates and he also calls capital gains on long dated assets so if the banks have a lot of long dated assets on the balance sheets so it's a lot of maturity mismatch on the banks balance sheets then he calls a lot of capital gains for the banks so maturity mismatch on the banks balance sheet is good because you cut the interest rates and really create capital gains for the banks but for all ongoing forward-looking business you have a negative effect from the net interest income so the net interest income for banks is going down so in the long run you actually hurt the banks so there's this Keynesian demand effects the capital gains effects but then from the ongoing business from new business going on you have my way with lower interest margins and that hurts you and the second question is then you know how low can you go we calibrated this in this reversal interest rate paper with young Kobe to a minus 1% so roughly you can go up to minus 1% but you cannot stay low for too long because there's a creeping up effect and why is that the creeping up effect comes the capital gains effects come at one time you get this capital gains but then over time as time passes you only have this negative effect coming in and in because the old assets mature and will be replaced with the new assets that's whichever lower return because of this lower interest rate environment so this is not specific to the euro area that's you know at the global scale it's in Japan that's in the US and more generally and that's something which requires you know some creative thinking how to get around these challenges that the monetary policy space is very limited so what's one way out one way out is to say and these be moved this direction let's move away from focusing only on interest rates let's focus on risk premium because what really matters at the end of the day is the risk-free rate the short term rate then the long-term rate the term spread and then the credit spread on top of it and what determines these spreads is some expected loss component which is really you know we can't avoid that but the risk premium you can affect and what's the risk premium a risk premium consists of the price of a risk times the risk and the risk itself is then divided in exogenous risk these are exogenous shocks which cannot control but there is also an indulgence component to it so there's an exogenous shock and then it's amplified through the indulgence channels amplification channels spirals runs and all this indulgence risk is emerging if you don't have set up your economy the right way that's a question how can we actually set up the economy in such a way to can actually reduce the indulgence risk and when you reduce the indulgence risk you also reduce the price of risk and that you know reduces risk premium and that you can affect much more effectively by doing you know the right thing setting up the economy right when intervening also in terms of asset purchases the right way and one way just one of out of many is to zoom in or to how do we need a safe asset design a safe asset for the area to reduce this indulgence risk which is inherent in the current architecture of the eurozone so I would like to focus on the safe asset in particular because you have this risk on risk off switches so the market is very volatile so you cannot really rely on the market so much and also the price signals of the market because the market suddenly switches from a risk on to a risk off phase and what's the problem is once you switch to a risk off phase suddenly all the capital is rushing into safe assets and if the safe asset is asymmetrically supplied by the core of the area then you have this cross-border flow suddenly there's huge shifts out of the peripheral countries to the core countries and that destabilizes the whole system and that destabilizes and creates indulgence risk which then exactly is priced with higher prices of risk and that causes for much higher risk premium but there has to be some structural reform in this dimension which you know in a coherent very less intrusive way but reduces overall indulgence risk in the system which then uses the price of risk and brings risk premium down because we can't do much on a short-term interest rate anymore so we have to work on the risk dimension and that's the thing the way to go of course the safe asset there's also a second dimension which you know many young economists will talk about this and there's some papers dedicated to that on the doom or diabolic loop there's actually two loops making things worse once you go negative shock it's amplified and this way now what's the other challenge the third challenge is that you have essentially if you focus on interest policy you have a single monetary policy tool and but you have a very heterogeneous currency union and as I said earlier the euro area fiscal budget they're very different philosophies there's you know one philosophy we're focusing very much on that and let me just say and one thing there is quite some fiscal amplification I learned yesterday at the European Investment Bank invested 300 billion euros in new projects and or was part of co-finding of 300 billion so when that's also in a sense of fiscal intervention it's in none of the statistics but 300 billion it's about what I think 2% of your area GDP which is a sizable you know countermeasure against financial crisis so it should be included in the debate as well and as I mentioned so monetary policy has limited space so we have no agreement what to do on the fiscal budget side and there's some tensions again I think the big tensions that on the one hand we really put the accelerator on on the monetary policy the easy bit are everything to stimulate the economy cut industries and many other measures but then on the potential policy we put the brakes on okay we said the banks you know after we were more careful the banks were cutting back on this so there's very there's inconsistency there's on the one hand you really try to push the banks to go into more risks thing because you get a very low interest rate from holding non-risky things and you should push them into more risky lending but then you put the potential measures on and said no no not into risky lending and that's somehow not 100% consistent and on top of it there is also the heterogeneity which requires essentially for some not only nationally focused macro potential approach but also some Euro wide coordination on that so what's the way out on that and I think we should probably go away from saying macro potential is purely think of the counter-circuit buffer is purely an instrument to manage financial stability macro potential policies Basel counter-circuit buffer and other things impact tremendously the macro economy can stimulate the macro economy also take stimulus out of it and we should really see it as a tool as financial stability of course but also on top of it stimulate the macro economy and of course I I'm aware that the Timbergen principle you know might be make this challenging but there are many many macro potential tools to manage that and it should be considered as a tool also to manage the macro economy in particular if you have very limited room on the monetary policy side and on top of it you can also manage the heterogeneity and as I saw Lucas when this symposium was in 2010 I proposed that you really you can optimize a suboptimal currency area because you can fine-tune at the regional level your market potential tools but of course it also requires some coordination at the euro area so let me conclude so I think we had some great early successes overall I think and I applaud Philip for pointing this out if we didn't have the euro we also would probably have a crisis and it might have been a much worse crisis and that's always forgotten I think to just blaming everything to euro I think is not the right way to go there are a lot of early successes there was a resilience through creativity we need additional creativity to find some resilience and Mario Draghi's speeches stands out on that we have a lot of progress on the banking unions there's still some steps to be done but we shouldn't ignore what has been done big achievements and that the tensions because we have different ways of thinking about the macroeconomies through this rein divide that the challenges we have limited policy space on the monetary policy side we should focus much more on the risk premium much more on reducing endogenous risk and there's a challenge because we have this monetary policy we put the accelerator on macro potential to breaks on we should see macro potential also as a way to stimulate the macroeconomy and that also we do at the regional level can also optimize the the currency area as a whole and one big element to to do this reduce the overall endogenous risk is to save asset component to bring the endogenous risk down and with it also then the risk premium thanks next up Ricardo great well thank you for having me when I was first given the mission of trying to give a 10-minute introduction on 20 years of the euro I realized the first task had to be to narrow down and so to narrow it what I did was went and read what some of the reflections on the first 10 years of the 10 years of the euro had been precisely 10 years ago and I think they're well captured by this quote from a speed as John Claude Richard the time gave which was that the year was a historic achievement in its first 10 years have been a success but more important than the verdict were the criteria that John Claude used 10 years ago for its first criteria was the stability of the euro which he measure in terms of the anchoring of inflation and its expectations second the role of the euro in terms of its use as a currency within the single European market both in financial as well as trade transactions and third in terms of the institutions of the euro meaning the ability of DCB and the euro system to focus on price stability independently from fiscal authorities and other parts of the government I would compliment those though with an extra sentence from another one of the evaluators of the first 10 years of the euros in terms of the policymakers in charge then in this case Lucas Papademos who said that the year has been a resounding success and pointed instead to its establish itself as a stable incredible currency the second most important one in the world after the US dollar so you would modify the role if you want to be its importance not just within the euro zone but especially the world so my strategy for the next nine minutes is to copy their three criteria and evaluate not the 20 years of the euro but the last 10 years of the euro that is to what extent how was the euro performed in terms of its stability role in institutions looking at more of the last 10 years so the first criteria stability that is the value of the euro it's real value how has it been affected by inflation and it's it was already mentioned in the speech both for Mario Draghi as well as communicator by Peter Pratt that the mandate though sorry not the mandate but the interpretation of the man it has changed somewhat over the years in terms that it was before an inflation between zero and two percent over the median run to then two percent or lower over the median run to more recently perhaps symmetric two percent over the medium run and note how the common parts here are two percent and medium run that is the ECB has been throughout its history committed to price stability over a medium or medium run horizon that is unlike other inflation targeting central banks DCB has always been what is nowadays perhaps called an average inflation target or what in the future gets closer to a price level target what matters inflation over a medium over average of five seven years or what not therefore the criteria is that gray line that Peter I presented that is what would it be a price level target or an average inflation target or an inflation target over a medium run of two percent since its creation and over the 10 years like John Claude had noted in the speech the euro has been extremely successful and so far as it almost exactly hit the two percent gray line in January of 2009 but over the last 10 years in particular the last five the deviations from the gray line have accumulated now at first I say myself because I was on the record saying that back to two years ago I did not think this is a source for great concern after all when we were at about price stability and the real value of the euro we were at about five ten twenty percent inflation a few decimal points below two percent especially given the measurement errors involved in building a price index that anyone who's worked in price index is aware of does not seem like something to make a big deal about however and this is why the medium run emphasis I think puts the owners on the right forces us to look at the gray line the persistence of these deviations below two percent even if every year there are only a few decimals below does lead to some sources of concern today where because we are starting to be significantly below the gray line now as Mario Draghi mentioned in the speech this morning it is important to think that when we think about hitting two percent on average over this medium run that sometimes you're below and sometimes you're you're above and likewise an Olivia Blanchard yesterday at dinner mentioned the key challenge in a currency union is and always will be the fundamental challenge is how to deal with relative price adjustments across sectors or across regions as well as the overtime averaging so let me try to bring it a third different perspective somewhat complimentary with the two of them think of the eurozone as having two regions such that its inflation rate pi easy is a weighted average of pi in a region C and inflation in a region P and think of the man of the CB as being as stated and repeated to try to reach two percent inflation or below as it has been during most of this decade but let me also consider a second criteria that is that region C being more inflation hawkish or more reverse inflation would like inflation it's in its region not to exceed two percent now in a scenario in which the real exchange rate the price adjustments which Olivia talked about yesterday dinner are such that they require that the relative price of the C region falls relative to the relative price of the P region then these two these two goals are not in conflict of any way and one can reach two percent inflation on average while having less than two percent inflation in the C region however if we are instead in a scenario where the real exchange rate the price adjustments have to occur in the opposite direction that is it must be that prices in the C region go up relative to the P region then in order to satisfy criteria two it must be that the inflation in the overall region is well below two percent or at least somewhat significantly two percent apologies for them for the symbols but this is somewhat an elementary an elementary I think algebraic conclusion why did I want highlighted though let's look at the eurozone inflation subtracted from its two percent target in blue here and let's in orange put indeed the change in the real exchange rate between a C region and a P region before 2013 we had indeed the scenario a an inflation was indeed very close to the two percent is in criteria one but after 2013 what changed was that instead we had higher inflation in the C region relative to the P region the change in the real exchange rate was therefore had to be positive and indeed we had that inflation fell below two percent on average for the eurozone now all of you are well informed and already have understood what do I mean by the C region and the P region the C region is the core of Europe Germany and France which account for roughly 40% of the GDP and the P reason I picked Greece Ireland Italy Portugal in Spain accounting for roughly 30% of the GP reason with apologies for the remaining 30% that I didn't put in either C or P in my simplification that is what happens 2013 was that whereas before in the 2000s the the first decade of the year of the challenge was that Balassa Samuels in effects as well as capital flows from the core of the periphery meant that price that rise faster in the periphery than in the core that was what was needed for the relative price adjustments in the last fight in the last 10 years and especially in the last five years prices had to rise faster in the core than they did in the periphery it was therefore inevitable for the ACP to stay within its 2% on average then inflation in the core France and Germany had to be well above 2% that is the only way that it was possible to have 2% but instead for inflation to stay below 2% in the core in the periphery as it did it stayed it ended up being inevitable that inflation the eurozone had to be well below 2% looking just at the last 15 months or 16 months we see that inflation in the core actually exceeded 2% now for a few months and consistent with the adjustment story that I told you we see that actually expect an inflation fell for the closer is the higher is expecting inflation in the core then the more the average has to be below in order to bring it down to the 2% second criteria the role of the euro or that's global use in one way the eurozone the second egg was a success the eurozone no country left the euro the eurozone kept growing from its original decade to the ones that join in that first decade into the second decade from another perspective the use of the year in invoicing or in the holdings of global reserves has significantly fallen over the last 10 years the euro is still well like in like in Lucas Papademos quote it's clearly the second world currency but it has fallen somewhat looking back and trying to assess that your second role I would separate in three parts from going from outcomes instead to policies the provision of liquidity in euros especially the countries that were in the way to to join in the euro as well as in other used to European countries where the euro was widely used in which account for a lot of this usage of the euro was a set was preserved through the quick deployment of euro swap lines that allow these countries both to defend their pegs as well as to finance their financial sectors when those were fight faced with sun stops of their euro funding at the same time though a set so that was in liquidity provision at the same time though in terms of reducing transaction costs reaping the economies of scale there are neither for financial transactions euro markets have entered in the last few years when the uncertainty with the uncertainty related to brexit and to the existence or not of a financial markets in euros that will continue to be vibrant more worrying though is the last point that Marcus Brunemeyer has already emphasized which is with an absence of a euro wide safe asset it is very difficult for there to be a larger usage of the euro as a reserve currency and for invoicing euros for the lack of that safe asset makes it essentially impossible to hedge the risk associated with that euro third and final criteria independence and particularly independence from fiscal policy the fundamental challenge of emu which continues from its foundation until its present is how to combine a single monetary policy with fragmented fiscal policies the founding treaty said clearly that the central bank should be independent should not take any instructions from any government asserting its independence for the fiscal authorities and the first decade indeed avoided that dominance of fiscal authorities very successfully by preventing any attempt at fiscal interference on the ACB's creation of seniority or desire or better even lack thereof of inflation away and expectedly any public debt at the same time though a second actually go sorry let me see at the same time though a second and new challenges emerge in the separation think of lender of last resort theory which is ultimately how or lenders last resort a liquidity policy which is where a central bank gets dragged in during a fiscal during a financial crisis happened in the last ten years what do I think is the theory and best practice of lenders last resort across the world or academically as well as in practice a central bank should start either to individual banks or to financial system as a whole so start by lending to illiquid but solve institutions the badger principle now it is inevitable that in some states of the world the illiquid become insolvent that's just life bad states of the world realize at that point best practice in theory says the central bank should call the Treasury for now this is a fiscal operation the taxpayers money is at stake and therefore it is no it's a part it's time for the central bank to pass over to the Treasury its operations okay note that this immediately implies that lender of last resort liquidity policies have a fiscal dimension once we hit a serious crisis you have at some point to call and turn over was liquidity into fiscal and you cannot avoid this there is no separation strict between this the separation only exists when you are in the good states of the world no crisis happen have price stability requires ruling out this fiscal dominance now who can the ECB call what it engages in lenders last resort liquidity operations and it turns out that the bad state of the world realizes in institutions are not to be insolvent now looking back I think we can say that when he reached individual banks either in Cyprus or in some small banks in Portugal or Spain the ECB indeed forced resolution set out with draw ability of some of these banks to have access to liquidity bills the ECB and forced national treasures to take the fiscal loss during the systemic crisis that affected the financial systems of many periphery countries the ECB who did it called it called the IMF and the Commission and nowadays in the future the ESM is by forming the troika and saying this is now a fiscal solvency is at risk you must be part of it and finally when it came to redistribution across regions the ECB following its mandate changed the rule so that sovereign bonds would be held by the national central banks and so that all national risk would be held at the national central bank level therefore separating any risk sharing and any redistribution at all now in light of its price stability mandate this was indeed fiscal dominance successfully prevented in all three ways the ECB succeeded in keeping its independence and keeping its focus price stability note I need to know parenthetically though they're in terms of social welfare as a price to restability all three of these bullet points can be argued as having gone against the social welfare but as a discussion for another day looking forward though when we look at the second decade this question still looms large will the fact that the ECB faces a segmented fiscal policies that it doesn't have an obvious person to call in the midst of a financial crisis imply there will cut out lender of last resort to early not internalizing the fiscal cost that this causes on national treasuries or will instead stay in lender of last resort operation until too late as fiscal authorities especially of different countries in the eurozone play chicken games on who wants to cut on who wants to pay the fiscal cost of resolving an institution across Europe more generally with macro parental policy that's national DCB will find sooner or later if it has not found itself already and for that the experience of the UK is an instructive one that you can create independent financial stability macro parental authority but when a crisis hits you the central bank are the first respondent and you are the one who has to know what to how to do that passing to conclude in my three assessments in many ways the second decade you could say was more success in the first the challenge were bigger and yet inflation was in control the year continues to be the second-largest global currency and liquidity was provided averting a financial collapse while preserving the price stability manage independence but these success if you want leaves very big questions for the future defining the target in light not just of over time and symmetry but in light of regional price adjustments seems crucial for the currency union challenge to be met investing in the architecture for the year to grow such as safe assets seems crucial for the year to go anywhere beyond where it is as a global currency and rethinking and more importantly restating what independence for fiscal policy means in the context of macro parental policies and lenders vast resort policies will become for sure cut the front row in the next crisis thank you so I will not try to exactly summarize all that we've heard in the panel so far but maybe one way to frame the discussion is that part of what we heard is essentially looking at the euro area as an aggregate so just like we might look at the US or any other large economy essentially what is the best monetary strategy what is the appropriate role for fiscal policy versus monetary policy in stabilization in a low inflation world so that's one part of the discussion a second part of the discussion is a module union works better when there's less divergence across the member states so that's partly about well how can we avoid shocks that create divergence so better policy making at the national level more similarity convergence if there's convergence to trade through single market and so on maybe the shocks will be less asymmetric but it's also the question of what kind of institutions amplify shocks what kind of institutions dampen shocks so these are issues about in a word with banking union with capital markets union with a central fiscal capacity with a safe asset with macro pru maybe shocks will happen but they won't be so dramatic and therefore the single monetary policy would be more effective so before I gather questions from the floor maybe I'll just ask start with Peter if there's any instant responses to what you've heard from the other panelists so Peter yeah I told you very briefly my reactions a bit I like what what you just said no Philip about the thinking about what are the amplifying mechanism or institutions weak institutions amplifying shocks because when you look at the past what you see is that the crisis we had and certainly the last ten years period you could have much better results had you had you know some of the institutions we created later so I'm not so pessimistic as it was expressed also by you this fundamental divergences that we had that you explained the cultural divergences I think if you have proper institutions and we are building and are not fined as this is the concern but the institutions all the amplifying mechanisms that we have the panic you know the the fact that when there is a shock there is there's nothing there you know and you have to react in I think that we made a lot of progress there now it is true and that's a bit what Ricardo came many things I disagree with you Ricardo but there is one story no because I don't think you are very well aware of the recent developments that you have in terms of less and many of us resort you know even for systemic crisis it is true that the the architecture is not finalized today so there you have a point so what happens when you have a systemic shock or systemic institution is it in spite of the BRD in spite of all what we have now you know how would the system react in the central bank you know for example providing liquidity in resolution is not yet an issue which has been solved who puts the bill you know if a big institution gets done or if you have a systemic shock so we are not yet there and this is a source of concern but you should not also say that not much has been done so far I think as huge progress has been done so far compared to what it was before but I think you're right Philip to say that we have to focus on the amplifying mechanism it always reminds me the Lehman brother if you look at the how to solve the Lehman brothers on the spreadsheet it's not that expensive actually the thing is that your institution framework has not been appropriate then you get into sort of panic you know situation we are not yet there that's what worries me but the lot has been done yet I mean so so you have to be much more granular when in the discussion so I cannot be I think the cultural you know when you came with Jean Pierre you know and and and the other colleague Harold with your book in Mannheim some years ago I think it's it's interesting but I think it's a very caricatural presentation about you know the dividing line between France and and Germany or that I think we should be careful about caricatures about cultures and I told you that at that time I think it's useful for those knowledgeable people but it looks like a bit populist you know sort of communication I'm sorry Marcus but it looks like tabloid sort of communication when say solvency liquidity and you see this I told you already before but we have to be careful I think in this circle it's fine but I think we should be a bit careful about it's not it's not exactly that and it's much more complicated than that the the question I think which is fascinating but is is your reversal rate now you come with 1% minus 1% your reversal rate I mean so far we have seen some of the banks including in countries like Switzerland for example but we have seen or in Scandinavian countries you see countries where the negative rates is quite low and where the profitability has been quite good actually so I think yeah well I think that they've managed their cost much better than others Luis you came recently in the financial stability review with that point so I don't know what's the reversal rate what I know is there are many ways for banks to tackle with that situation and I think you know I think you pushed your reversal rate you know to minus one I think it was not was it always minus one I think it was weaker was always minus one okay good I don't remember but so that the macro potential tools for cyclical policy I well I think there is a box in the financial stability review I think which would be extremely careful I don't think we put on the accelerator on one side by liquidity provision and on the other side on the break you know by potential first the potential rules are for banks and the financial system is not only banks so it is true that one deals very much with the high leverage high liquidity risk institutions and then we provide liquidity to them to allow them to adjust to the new environment but I don't think it's it's a contradictory policy it's a very well thought you know what you do when you have a financial crisis you provide liquidity of course there is a moral hazard problem when you do that but then you tighten on the other side by regulation and that takes more time and that's a little bit you know the Pittsburgh you know strategy that was there and well that's what what we have been doing so just a couple of remarks but then thank you Peter and Lawrence did you have any reactions to the other panel so far you take me you take me by surprise here well a couple of them first I think when I look at Marcus I agree you made me feel very French and I can assure you that the chart had been and the thinking was done at the OECD with a crowd of you and non-European so I think I would agree on this that it was a bit him he's a bit a bit on on them it was true at the beginning probably but I think it has evolved quite a lot and deep down I think anyway we need to overcome that because if we continue with this clear distinction between monetary and fiscal policy we won't get out of the situation we're in and in the next crisis I might be a bit less less optimistic than Peter because I think the divide may have gone it's going to be more difficult to overcome thank you Marcus let me just react to some of course what I meant by this French German I meant more broadly and it's it's a black and white representation it's just to make it clear at the communication the reversal interest rate of course is is very different this very dependent how the banks of funding so if you're in Sweden for example if you a lot amount of wholesale funding so changes the whole thing it moves the reversal interstate allowed that didn't have time to go into that so I just want to reiterate the fiscal side I think that the European Investment Bank I think can play a big role in this dimension it has played a big role I think that's something which we should also take into account and and I very much like Ricardo's point that you know if you look at the average inflation we're having 2% target then probably has to be some countries which are my profit some other countries which are below but perhaps we should also when we do some forecasting also have more about the divergence across different regions and if there's an inflation target I don't know whether you want to have inflation target for various countries if you in particular want to change the real in exchange rate within the area then it might make sense to communicate this to some extent as well okay thank you Laurence again just to actually a reaction on the safe asset because I find talking about safe asset in a totally abstract way is if you forgive me nearly a little hypocritical because where's this safe asset coming from either it's coming from a common new area fiscal capacity and when we're talking again about having a common stabilization tool and then it issues debt and it's a safe asset because everybody's guaranteeing it when and I hope Philip will forgive me this time but if it's a totally private sector safe asset then the private sector can do it by itself and without any implication of the public sector without some sort of guarantee or tax incentive which shows that the public sector believes into it then it will not be a totally safe asset thank you Ricardo let me be very brief since in my first intervention I think I took a little longer than others I want to just emphasize this monetary fiscal which I think has premiered many of the discussions and many have said to what extent one needs some fiscal if you want aggregate demand management to complement that one offered by the monetary one and certainly in the case of when it comes to stabilizing business cycles I think that is an ambiguously true I wanted I was emphasizing more and in my presentation I will do it again the need for monetary fiscal separation though which is that it is crucial for price stability that there is no fiscal dominance and that the fiscal risks taken by a central bank are both highly managed understood and not subject to interference and as I said I think in the first I think we understand that relatively well when it comes to let's say normal times generation of seniors inflating the debt we understand to what extent we need central bank independence and I think the ECB understood that well in the first 10 years over the last 10 years we've understood how a conventional monetary policies lead to a series of solvency if you want our capital loss type risk to the central bank and we've understood how we can manage those again in a in a way that I feel somewhat confident that we know how to address that challenge moving forward though and even if much progress has been done like Peter said understanding the monetary fiscal not cooperation per se but even just separation independence in this in a scenario in which there's a lender of last resort in a scenario which is financial crisis and where a single monetary authority has to face several independent fiscal authorities knowing that bailouts will happen maybe with mail in maybe not and that the central bank is always at the start of that I think is still an unsolved question not in Europe but theoretically in general and I think it's one that has to play a bigger role in intellectually as well as in practice one has to seriously consider precisely because I think that separation is important for the preservation of price stability which being a little bit of a hawk I myself am very much committed to beyond the aggregate demand management that was emphasized and then very briefly on the runs I mean for at least the usage of the euro as a global safe asset and for it to be more used as a currency of invoicing as a currency that's important in financial assets in holdings I do not think that you need risk sharing do not need a euro bond type instrument you do not need tax backing those would be important if you want to achieve risk sharing perhaps but I certainly did not say that some may think so and that's fine but if all you want us to create a liquid instrument that allows you to have a well-defined heel curve that allows people to hedge their risk that allows people to have like Marcus said break the diabolic loops that generate endogenous risk as well as drop cross-border flows that emphasize and that enhance these real exchange rate and price adjustments for those I don't think you need the fiscal backing I think you can produce them privately publicly I think publicly is probably better as the work with the SRB on sovereign bond back secure as I think has shown but those will be important from an architecture sense even if not providing any risk sharing and that's not involving any fiscal commitment. Thank you Ricardo. So what I'm going to do is gather some questions collectively before coming back to the panel and actually the first person I see is Francois. Many thanks to all of you. One quick comment and one question. My comment Marcus will be an additional one very short on the Rhine divide. Allow me a personal consideration. I happen to be born in Strasbourg on the Rhine so if you were right it would be a very uncomfortable position but you might be right that there is some kind of cultural divide but if there is one it's probably more an Atlantic divide with a financial culture in Germany insisting more true on stability and rules and the financial culture in the US insisting more on flexibility and markets but I will stop here. My question is for Peter congratulations for your 17 slides they were excellent. You touched upon the issue of the monetary pillar and you suggested that we should perhaps revisit it and link it to financial stability considerations. Could you elaborate a bit more about that? Thank you. Okay I have a lot of hands up so with apologies for not trying to follow any particular order. Thank you very much. You will forgive me to concentrate a little bit on the four year first years of the crisis which were really very dramatic and I fully agree with has been said namely that it was the worst crisis since 29 thirties and not not only since World War two. One to echo what has been said on the divergences between states. We could observe that in a single currency area it was pretty possible for the wages and salaries in the public sector in two countries member of that single currency area to diverge over 10 years in the following fashion. Augmentation in one country say country A 20 plus 20% in euros and country B plus 117% in euros. This was not foreseen by anybody. We could not imagine that it could happen. It can still happen in my opinion if we are not very very attentive and from that standpoint the invention of the I would say multi the MIP the imbalance procedure. Yeah because I have the French acronym in mind namely that control of the divergences both on the side of the competitiveness cost competitiveness and on the side of the overall external imbalances is absolutely free and I mentioned that in person because it seems to me that we pay not sufficient attention to that's not the ECB job but ECB should be on record for having told all ministers of finance since 2005 you are diverging and that the divergences will create in immense problem. Another element that I would like to mention Ricardo made the point history is at stake there not only because it's the boldest endeavor in the monetary area ever in my own understanding but also because when we are in charge when when the Veeam passed to me the baton we were already 12 when I passed the baton to Mario we were already 17 and Mario had to accept more countries himself so we were 11 at the very beginning then very rapidly 12 19 today who can say that this does not create enormous new challenges threats for the central bank concern I'm not speaking of the of the government themselves but this is something which is not necessarily captured from outside even even across the channel across the Atlantic or across the Pacific that history is in the making in a way which is very unique obviously and let me also mention to conclude that practically all new I would say very bold unconventional tools where experience in the first four years I mean we had the full allotment at fixed rate what would have been the monetary policy transmission in the area in the crisis if we didn't have this concept which is still there and permits of course at least at the very very low interest rate of the yield curve to have the same exactly the same in all countries because the banks have access to that full allotment at fixed rate we had the SMP with the SMP was terribly criticized when decided by the governing council we even had colleagues that were very very infuriated it represented the all taken into account if I'm not misled 218 billion euros targeted on one third of the GDP of the area so it was the equivalent of something like 600 billion in the area in a short span of time and of course it prevented us from having an absolutely dramatic unfolding of speculation so it was something which was very in my opinion very important for Mario when he said we can do anything and that was you know we can go and multiply what has been already experienced and was no not continued because the government at a certain moment had accepted themselves to take the baton and I was reading again the conclusion the communique of the Brussels European Council the 21st of July 2011 where they had reaffirmed themselves that the ESFS ESM could intervene on the secondary market which permitted us maybe a little bit too naively to think that they could step in and that there was the possibility of the government to really step in experiences demonstrated what not the case thank you so right behind your valker thank you for excellent presentations so we've heard a lot of praise about multi policy we've heard that fiscal policy needs to be put at the European level to optimally manage fiscal policy for the euro area kind of shifting the IS curve for the euro area but I'm worried that there is a bit of a disconnect to the developments we've actually observed in Europe in the European elections I mean we have you know Emmanuel Macron was campaigning on the proposals for example Laurent was mentioned right but he lost against Le Pen right the majority is euro critic and not the majority but the largest party is euro critical if we look at Italy we clearly also have a trend there to even from the government to more sovereignty back to the national level I mean they're not calling for a fiscal government in Brussels they want to have more fiscal livery there why they're calling and this is why they're calling for the ECP to guarantee their debt so we have this trend to more national sovereignty and away from Brussels how are we how are we gonna turn that around I didn't hear any proposals about that and I'd like to put that question and maybe one if you allow me one plug for the Bundesbank in Germany actually we also have a euro critical party but it stayed at eleven twelve percent which is more than enough but I think the steadfast and you know effective defense the Bundesbank put up for negative interest rate policies for target balances for QE in Germany you know and the Bundesbank is a trusted organization and I think that really kept the trust in these policies among the population as a side plug thank you thank you Stan Fisher sorry Richard for Stan Stan thanks Ricardo I think you are ignoring history the IMF as a neutral lender of last resort which is not fiscal ask Schaubler what happened in Greece it was done by the fiscal authorities so there is no lender of last resort that does not end up inflicting something on the fiscal authorities and don't prevent it because one day if you really prevent it you'll get into a huge crisis okay right behind you Richard and then Ali ran and then I'm going to cut it at that point I won't go into the rather difficult issue of macro pru and the relationship between macro pru and monetary policy but focus on macro pru a number of people did and we have I think a rather curious situation in Europe the macro pru authority first of all the review of the institutions did not significantly enhance the role of the European systemic risk court although it did for ESMA and second we have this I say curious position in which we have the ESRB on the one hand and a substantial macro pru capacity in the European central bank on the other hand yes the ESRB is the entire EU and the ECB is just a 19 but my observation suggests that there's not much coordination relationship between the two and that you could strengthen significantly macro pru policy even without the power to tell individual countries what to do you could strengthen macro pru policy by a better integration between those two thank you Ali ran thank you many thanks and my question links to the lessons learned concerning unconventional measures and it could also link to what Peter was referring to further clarification of monetary strategy and Lawrence was referring to a review of monetary policy frameworks namely the paper of Philip Hartmann and Frank Smith's have an interesting comparison concerning the asset purchases and their effect and based on this comparison it appears that the asset purchases during the crisis probably had a more modest effect on output in the euro area than in the US and in the UK so in your view what could explain this differences between the euro area and the US UK is it the timing because the US studied it earlier than the euro area second is it the structure of asset purchases in the US the QE one especially was more effective buying private sector securities and third or third was it the structure of the financial system because as we know the euro area has a more bank-based financial system than the United States so which of these would explain the effect because this also may have short term implications as appropriate if needed thank you Ali so we've got a range of contributions there so mix of questions and comments so I'm going to ask in turn the panelists to respond but maybe also bear in mind that since we're over running unfortunately won't go to second round of questions so those of you have more questions you can just you know overlaunch approach the panelists so Peter so for François I would be careful not to transform the second pillar into a financial stability pillar I would be cautious we have to reflect on this I think the the money and credit now is extremely useful to have a focus on the transmission I think more important I mean that's one point so I would stick to that but the question is to one extent should you in the conversation introduce more in a more systematic way financial stability consideration question mark and I say we have to be careful about this because you you you have very often different time horizons and you want at the end of the day to take decisions sorry to say that but so it's something you have to think very carefully what leads us to say that is that when you look at what happened before the crisis you see this huge expansion of credit which we don't see today but do you use expansion of credit and we said well there are some upside risk for price stability linked to the second pillar I think you are a little bit short on the ball you see it it it's a very strong signal of trouble much later on and that didn't really come sufficiently it came I know because I read also the speeches at that time it came in the communication but we didn't have at that time a macro potential framework and the instruments because you would have increased the rates at that time to to to master a little bit that it would not have worked because you would have you know increased the rates too much you know it would have killed the economy immediately so I say before jumping to that conclusion I would be very careful for the time being I think it's transmission but I think how do you bring in the conversation more the financial stability consideration that we have given also the fact that we say you have fiscal you have monetary policy and you have macro potential a sort of tools and at some point you need to put these things together in the in the conversation that's only the thing I said the the the question also which I think only about the QE in the US you should ask frank I I'm not sure they're right in what they they I have a sort of degree of skepticism about this but you know the reason is basically what you said is very different sort of environment and QE per se you cannot see per se QE because it was part of a complex set of instruments interacting with each other and so it's very difficult to disentangle these different things the only thing I can say is that there was a dramatic easing of financial conditions at the end of the day and I don't know what the transmission I think what you said on the on the risk channel I have a bit difficulty when you say we have to target directly the risk premium we do when we buy bonds we do that actually so that we do it already we do it indirectly via the portfolio rebalancing are you suggesting suggesting that we have to go directly into other classes of assets to compress you know risk premium like credit high credit risk sort of assets or even equity premium I think that's something that you have to reflect carefully before you say that in public it there are many many different implications and also political implication if you jump so we prefer to do it indirectly basically except for some classes well-defined class of assets but saying you have that has to be the new policy I think you have to think carefully about that okay thank you peter at laurels um so I'll be quite quick and I think I'd focus on fiscal for finance and monetary policy I I think I agree with Stan that it's you need a fiscal backstop for lender of last resort you need a fiscal backstop for banks resolution at some stage I don't think the safe asset you've described is actually a euro safe asset the one you describe is the boond and we have it or we can do risk weighted assets of what exists in the euro area and I think that for macros stabilization we also need to have a fiscal compliment today especially when monetary policies where it is and especially when there is such a mounting backlash against the independence of central bank the burdens needs to be shared and I don't think again that actually there's so much difference between France and Germany I think 2009 episode showed that it actually can be the case that we think the same where the difference is is probably how much transfer or how do we do how France and Germany do organize the transfer but but essentially when faced with a crisis both countries react in the same way and I would just like to finish with a sentence which I can't remember who said that but I think it's so true that I repeat it it's anglo-saxons have europeans sorry have always underestimated the economic cost of the european monetary union but anglo-saxons have always underestimated the political commitment for the european union okay thank you marcus yeah so let me just not get up I'm all about building bridges across any river also in particular riverine and that the reason is to highlight the differences in order to overcome them very much I appreciate choclo's intervention about increases in public wages and perhaps you should have not only inflation target but also inflation divergence target so if there's some divergence that we really point out to that I very much applaud you know the macro potential instruments are integrated in a broader framework rather than just treating it as totally separate with regard to all the reins questions on unconventional monetary policy in my view what you saw in the united states is that what really worked were the purchase of mortgage-backed securities so buying us treasuries as a qe measure did not have much impact but buying mortgage-backed securities had huge impact why first there was a rule only to buy new mortgage-backed securities so it really brought mortgage rates down and supported house prices and that made a huge a difference to the macro economy similarly I think more generally I think whenever you depress credit spreads then it has some impact if you just swap a long dated safe asset for a short dated safe asset the impact is much much smaller and the same thing in in europe if you buy german boons probably is very very little impact on the german economy if you buy risky countries sovereign debt and bring down their interest rate it has a much bigger impact so I think that's where the focus should be with regard to buying more risky assets I don't think you should target risk premium it just you should be aware through the risk premium how they monitor the channel how it really works at the end of the day thank you Ricardo I just want to reply very briefly to stan because I was a little troubled um because I think I failed at transmitting what I was saying I try to make three points and the first one which now I understand I probably preaching to the choir was to say that all lender of last resort and liquid operations are ultimately fiscal and I made that point theory and you said that's what history shows and so I completely agree all heartily that history shows that lender of last resort is ultimately fiscal operation and that was the first point I made for three or four minutes then I complemented that with two points which was one that because of that and because the first lender of last resort in europe especially when we have a single monetary and fragmented fiscal is very often the european central bank we therefore have to think hard about what is the independence and separation between monetary and fiscal in that setting which I think is a harder problem that history can teach us much about because we usually have one monetary and fiscal that can coordinate much better has happened in the United States as we see an interaction of long bear sterns or Lehman between the treasury and the Fed which was very active in terms of passing exactly from central bank to the other in which in Europe I argued is harder and therefore a challenge for it and then my third point was that ECB had made some choices over this over the last 10 years that those probably preserve price stability may or may not have led to higher or lower welfare left that open but they're looking forward in here perhaps being more on the other side of the line in terms of market description I asked for better rules better than standard institutions of exactly what will be the monetary fiscal separation when we discuss lender of last resort but this all starting from point one which is lender of last resort and liquidity as history shows is inherently ultimately always a fiscal operation but one where the monetary authorities involved and that's what I think triggered my discussion of that point so I could not agree more that history shows us that that was the starting point of what I was trying to bring to the light thank you Ricardo let me just close maybe with one minute of reflection before allowing everyone to go to lunch first of all and I think this is a really fantastic panel which followed I think a very important morning in terms of our understanding of ECB monetary policy of convergence and so on let me just respond to two points that came up with Ali on QE we heard this morning that OMT was a version of QE in terms of the bringing down the the spreads so in terms of working out the overall impact of ECB unconventional policies we have to laugh at that and second it came up repeatedly especially from Marcus and Ricardo and Ricardo's issue about preferences about inflation at a national level I mean I think it's a very important issue about regional price divergences but these are always going to be finite and temporary because it's not the case you can permanently have an inflation differential they're self-correcting and so what's interesting about the divergences in some years it might be Germany below above in another year it might be Spain and so on so in terms of the coherence of the monetary union we all have a common stake in a monetary stability price stability but recognizing that these rather price movements may be persistent but they're not permanent they're persistent so I personally wouldn't call this inflation you know it's rather price adjustment so with that I'm sure you'll all be discussing these topics over lunch but I think we made some progress this morning so thank you to everyone and enjoy lunch