In fact, for years, Greece had made poor management choices: no structural reforms, no privatisation, it had raised wages much faster than productivity and, to cap it all, it had massaged its public debt figures. The cocktail was explosive and it did indeed explode. Markets then became jittery about the debt of two other euro area countries: Ireland and Portugal. Nonetheless, a distinction should be made between these countries’ situations. Ireland enjoyed very strong growth for ten years with exemplary fiscal management. But it made two mistakes: on the one hand, it allowed its banking sector to become too developed with huge exposure to US real estate assets and, on the other, it gave an almost blanket guarantee to this sector. In 2010, the country was hit by the US financial and real estate crisis that caused banks to fail and require massive State bail outs. Its fiscal deficit then exploded, triggering panic on the markets. But, it is clear that this crisis was due to more specific factors. 2  BIS central bankers’ speeches  However, the case of Portugal is closer to that of Greece, even though it is much less critical. The Portuguese economy has constantly performed poorly for the past few years. Growth and productivity have been weak and fiscal policies very lax. It is therefore a crisis of confidence about the sustainability Portuguese sovereign debt that caused its borrowing rates to soar and denying it access to market financing as of last March.
Can this persist in the long term? The ECB’s monetary policy will remain very accommodative until inflation is firmly on a path towards 2%. What other reasons are there, beyond the ECB’s decisions, for interest rates being so low? It is because growth is still weak. It is because our economies are less able than in the past to create growth. The ECB must take account of this environment and, to provide effective support to the recovery, we must set our key interest rates at very low or even negative levels. If the European economy regains the ability to sustainably create growth, interest rates will return to levels more favourable to savings. How do you account for the fact that economic growth has remained low in France in 2016? The pace of economic growth is accelerating throughout the euro area and the unemployment rate is falling, including in France, but at a slightly slower pace. The ECB’s monetary policy has made a strong contribution and the reforms implemented in each country have played a role. The countries that were severely affected by the financial crisis have had to undertake reforms. The reforms that they have implemented, particularly in the labour market, have been hard but are now bearing fruit. In Spain, for example, growth is set to be above 3% in 2016 and the unemployment rate is falling rapidly. France, which weathered the crisis better, faced less pressure to undertake reforms. Today growth in France is weaker and unemployment is higher.