This, in a way, is a good thing, as it contributes to restoring their competitiveness, as witnessed by their strong export growth. However, the lower inflation is, the greater the risk that unexpected shocks could push the economy into deflationary territory. Since this could, in turn, have consequences for overall euro-area inflation, it is perfectly justified to ask what should be done to minimize that risk. The best protection and the first line of defense against the risk of a lost decade is structural reform. Structural reforms stimulate private consumption and make investment more profitable. In particular, they increase the return on capital and, as a consequence, the economy spontaneously moves towards an equilibrium with higher interest rates. In turn, higher equilibrium interest rates would make it easier for the European Central Bank to set its own policy rate at levels consistent with those needed by the economy. The chances that monetary policy becomes constrained by the lower bound of 0% interest rates are reduced. Higher equilibrium rates also benefit savers, a legitimate concern in many countries. Basically, savers have a claim on future output. They are best protected when growth is sustained and widespread, allowing them to earn high returns and diversify their risks. That said, deflation, like inflation, is ultimately a monetary phenomenon. And central banks must fight all risks to price stability with determination. Under the Eurosystem mandate, which is the cornerstone of all our actions, price stability is our priority objective.
In parallel to assessing future economic prospects, the European Central Bank’s governing council looks independently at the dynamics of money and credit aggregates. This has proved very useful in the past to detect long-term risks to price stability, in both directions. The message today is clear: both money and credit are growing very slowly in the euro area as a whole. The M3 money-supply aggregate grew by 2.1% in September. These trends do not signal deflation, but warrant monitoring and vigilance when facing an uncertain future. Obviously, intentions may not always suffice and must be backed, when necessary, by appropriate and timely actions. Recent decisions by the governing council regarding both policy rates and liquidity provision show that we are ready to make the necessary decisions. Many instruments remain available should further risks materialize. There should be no doubt that the Eurosystem will ensure that price stability, as currently defined, will be maintained in the euro area. 2  BIS central bankers’ speeches