Furthermore, there is a very convincing argument for the extended repo-rate path in that it provides better outcomes for both resource utilisation and CPIF inflation, which can give it just as much credibility as the lower repo-rate path. 4  BIS Review 60/2010  The extended repo-rate path also has the advantage that the monetary policy alternatives can be reduced to the question of when we should begin to increase the repo rate: in July or September or, as I advocate, in December. The monetary policy choice thus boils down to deciding which point in time for the first increase gives the best outcomes for inflation and resource utilisation. That is, which point in time gives a forecast for CPIF inflation that is as close to the target as possible and a level of resource utilisation that is as close to normal as possible. Could the monetary policy decision between alternatives be any simpler, more distinct and more transparent? Given this background I thus decided to advocate the extend repo-rate path rather than the lower repo-rate path as an alternative to the path in the main scenario. The extended repo-rate path stabilises inflation and resource utilisation better than the repo-rate path of the main scenario In my view, various monetary policy alternatives must be discussed and assessed before any monetary policy decision can be clearly justified.
But the crisis has not yet been overcome – which is hardly surprising, since structural reforms are also required if this is to be achieved. It is important to acknowledge the efforts that have already been made in this respect in the affected countries, and as an onlooker one should be cautious when making recommendations. Yet there is broad consensus that additional structural reforms are needed and should be implemented consistently. Such reforms should increase the growth potential of the countries affected and allow them to significantly and sustainably reduce their high level of unemployment and debt. Additional efforts are also required in the banking sector. Consequently, the bank review to be carried out by the ECB is extremely important. Only a healthy banking sector is capable of supplying the economy with sufficient credit. However, risks also exist outside the euro area. The global recovery could be held back by political tension in several regions as well as structural weakness in major emerging economies. A further source of potential turmoil is uncertainty about the future path of monetary policy in the major currency areas. In particular, the divergence in the monetary policy direction could increase. Overall, monetary policy in the advanced economies is likely to remain very expansionary since production capacity is underutilised and inflation is low. But while in the US the Federal Reserve is preparing the ground for a gradual normalisation of monetary policy, the ECB is considering whether it should undertake further monetary policy easing.