Christian Noyer: Current policy debate challenges – a euro area perspective Welcome address by Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, at the 4th Bank of FranceDeutsche Bundesbank Macroeconomics and Finance Conference, Paris, 24 May 2013. *  *  *  Ladies and Gentlemen, dear colleagues, It is a great pleasure for me to speak in front of such a distinguished audience. As you might know, this is the fourth time that the Banque de France and the Deutsche Bundesbank have jointly organised a conference of this type. It is held every other year, alternately in Germany and in France. The fact that these two institutions sponsor an event of this nature sends a clear signal to the community of researchers: it illustrates the importance of research for the conduct of monetary policy. This is especially relevant at the current juncture as our understanding of the interactions between financial markets and the real economy remains incomplete. The work of outstanding quality presented during this conference could help influence the design and the conduct of monetary policy. The programme of this conference is very rich. It covers topical subjects that are of the utmost importance from the point of view of current policy debate. Let me take as an example the topic covered this morning: unconventional monetary policy, which have been my bread and butter as a member of the ECB Governing Council for the already six years.
Taking a euro area perspective, these results are interesting in at least two respects. First, the level of US interest rates are an essential feature of the world economy and the economic and financial environment of the euro area. Second, the experience of other major central banks is a natural benchmark for the design and the monitoring of our own policies, on which I would like to share with you a few thoughts. The predominant objective of our first wave of unconventional measures, which we have labelled the “fixed rate full allotment” supply of liquidity, was to ensure that liquidity shortages do not escalate into defaults, especially in the financial sector. This has mainly consisted in ensuring the correct provision of liquidity to the banking sector against the backdrop of a major confidence crisis. BIS central bankers’ speeches  1  Yet, by the end of 2010 the crisis had taken on a new form. The fiscal constraint became binding in a number of periphery countries. Investors started to price in sovereign credit risks. By 2011, it appeared clear that investors were also factoring in the risk of a euro area break-up. This, in turn, entailed an increased degree of market fragmentation within the euro area, with borrowers facing different credit conditions depending on their country of origin. Our Outright Monetary Transactions (OMT) programme was specifically designed to reaffirm the irreversibility of the euro. The OMT allowed investors to discard a specific form of systemic risk.