In the short term, many of the uncertainties obstructing the economic outlook – and especially the manufacturing sector – are man-made – and even one-man made. Contingencies that not so long ago appeared as tail risks, such as the possibility of an escalation of trade tensions or a disorderly Brexit, have become looming threats. But uncertainty also pertains to long-term structural trends. Over the past decade, the world economy has steadily recovered from the global financial  Page 2 sur 11 crisis. But it has not returned to its pre-crisis normal. Interest rates remain at historical lows, due to a historically low level of the natural rate of interest R* ii. In the short run, this analysis – uncertainty as the first trigger of the present slowdown – should guide our ranking of policy answers. Monetary policy plays its role, but it should not – less than ever – be the only game in town. It should not even be the first game in town. The first response would be for government-driven uncertainties to be addressed directly by governments, by removing the self-induced threats to world growth. Failing that, a second answer is for fiscal policy to step in. Fiscal stimulus from countries with fiscal space would both stimulate aggregate demand, and, with targeted, quality investment, increase long-term growth. iii Wage increases in countries that have long relied on wage moderation could also help in bolstering aggregate demand and inflation. And pro-growth reforms would raise R*. Monetary policy provides a third response.
Central banks have an operational independence but they do not decide their own mandate. The mandate given to the Eurosystem is clear: our primary objective is price stability. However, our mandate states that we “shall contribute to the smooth conduct of policies pursued by the competent authorities relating to the prudential supervision of credit institutions and the stability of the financial system” x. Careful attention to the dynamics of the indebtedness of households, firms, and financial intermediaries would also be in line with the intellectual tradition of the Eurosystem. Since its inception, the ECB has always given special attention to broad financial aggregates in setting the course of monetary policy. It was emphasised by its monetary pillar and is now emphasised by its monetary analysis. Restricting attention to measures of liquid liabilities such as M3 has probably little justification today in view of the little direct relevance of monetary aggregates for price developments. But the relevance of broader and more varied credit aggregates is beyond question for both price and financial stability concerns. Together with asset prices, they could constitute the base of a revised credit and financial pillar. xi  2.2  The Separation Principle becomes less relevant with a multifaceted monetary policy  The link between monetary policy and financial stability raises two questions. First, what are the quantitative effects of monetary policy instruments on financial stability?