“The tools we have deployed since June 2014 are producing the intended effects,” said Mario Draghi in a speech in Bologna today. “Following the recalibration of our instruments decided by the Governing Council earlier this month, the ECB expects inflation to return to its objective without undue delay. The President also said that if the ECB had to intensify the use of its instruments to ensure that it achieves its price stability mandate, it would.”

“However, while monetary policy can deliver price stability, that alone does not guarantee lasting prosperity. To have a structural recovery we need to raise not just current growth but potential growth as well. The key to this is higher investment. Investment has been held back in the euro area by three things: weak demand dynamics, the still-high private debt overhang and fragile private sector confidence.”

“The euro area today needs to take additional steps, alongside supporting demand, to address the debt overhang and fragile confidence. Structural reforms are key to this end. It is clear that, in some countries, the large stock of non-performing loans (NPLs) is still preventing a stronger recovery in credit. All this explains why facilitating a work-out of NPLs has to be part of the package of policy actions to restore productive investment. The ongoing work towards a Capital Market Union (CMU) is an opportunity to accelerate progress also on this front. If we are to truly underpin confidence, it is important that, even while dealing with more pressing priorities, we do not lose sight of the need to complete our monetary union.”

After a crisis lasting eight years, the European economy appears at long last to be on a more solid footing. The recovery is now led by domestic demand rather than exports; it has proven to be resilient to the recent slowdown in global trade.

Monetary policy has given a decisive impetus to this. The tools deployed since June 2014, in particular the asset purchase programme of public and private sector securities introduced in September of last year and expanded in January this year, are producing their desired effects. Following the Governing Council’s recalibration of our instruments earlier this month, we expect inflation to reach our objective without undue delay.

But we continue to closely observe movements in economic and financial conditions. As I said at the last Council meeting, and again more recently, “there is no doubt that, if we had to intensify the use of our instruments to ensure that we achieve our price stability mandate, we would”.

But the shocks that have hit our economy since 2008 were not merely of a cyclical nature. They were also structural.

In this context, while monetary policy can secure price stability, that alone cannot bring lasting prosperity for our economies. It is essential, therefore, to intervene on both the supply and demand sides and to act consistently on all fronts to consolidate the turning of the cycle, and at the same time create the conditions for a sound and lasting recovery. What I would like to discuss today is the way in which different policies can help achieve this result, by acting not sequentially but simultaneously in their respective spheres of responsibility.

Source: ECB Eurosystem