The answer to such problems lies, ex ante, in better macroprudential and microprudential policies and better regulation of the financial system and, ex post, in better resolution institutions. Strengthening Europe’s financial framework, including the establishment of the banking union, is the right way to address this source of macroeconomic imbalances. It is of the utmost importance to complete the banking union without delay.
Hence, monetary conditions in the euro area will be looser even without any further central bank action. Third, the risk of a deflation scenario in the euro area is extremely low.