That said, many countries within the zone also have had to make sharp fiscal adjustments and implement significant structural reforms. Unfortunately, many of these structural reforms may have a transitory deflationary impact. This is the case of product market reforms, which directly target lower prices, but also of reforms fostering supply if demand is depressed. Enhanced competition in telecom led to an impressive decrease in prices: in France, the entrance of a fourth mobile phone operator led to a decrease in mobile costs by a quarter and a negative impact on the average CPI of 0.3 point in 2012. There have been similar disinflationary effects in many of the so-called stressed jurisdictions of the euro-zone. However, at the current juncture, structural reforms are badly needed due to the productivity slowdown and larger product and labour market reforms should be envisaged in highly regulated countries. 13 In that case, it is crucial for the central bank to anchor inflation expectations, through a clear commitment to its inflation objective. The Governing Council has been clear that it is willing to do everything within its mandate to deliver on this objective which is headline inflation close to, but below, 2% over the medium term. Structural reforms can also have a short-term negative impact on employment and growth, especially in a depressed environment 14. In that respect, monetary policy can provide an offsetting support to growth, along with fiscal policy.
To counteract this impairment of the credit channel, the Governing Council has, alongside other non-conventional measures which don’t need repeating, also launched two targeted lending programmes. These so-called TLTROs I and II allow banks to borrow up to a fixed fraction of their loan portfolio at an interest rate linked to the ECB official rates. Banks that make new loans in excess of their benchmarks receive a lower average cost of funding. This provides a powerful incentive to expand lending and goes some way towards alleviating funding risks when nominal interest rates are negative. In a further step to alleviate the credit channel, the Governing Council decided to include corporate bonds in its asset purchase programme in March 2016. This should directly reduce the cost of corporate borrowing in capital markets. Overall, these measures have been quite effective in easing credit conditions in the Euroarea. The volume of bank lending to non-financial corporations has begun to grow again and bank lending rates have fallen across the Euro-area but most noticeably in those countries where that had tightened the most. 2. Monetary policy can foster long-term growth by supporting structural reforms  The financial crisis in some ways revealed some structural weaknesses in many economies. In some cases there were excessive levels of public debt. 10 In others it were structural  6  R. Riley, C. Rosazza-Bondibene and G. Young, 2015. “The UK productivity puzzle 2008–13: evidence from British businesses,” Bank of England working papers 531, Bank of England.