BIS Review 66/2004  7  Meanwhile, even with a clear intention to do so, the practice of lending, and the pricing of lending, in accordance with state policy and not the credit worthiness of the borrower takes time to get rid of. Although it does not take long for the credit officer to learn to look at the balance sheet and the profit and loss account of the borrower, the security of the job requires an unspoken recognition of the authority of those in a position of power in the government bureaucracy. A further complication is the fact that commercial bankers are part of the government bureaucracy. In such a system, it is difficult for the bureaucratic position of the individual to be aligned with the commercial interest of the bank, which is to make profit. There is an interesting description of the stance of such an individual: where you stand (on an issue) depends on where you sit (in the bureaucracy). Consequently, it will take some time before the process of credit allocation becomes entirely market-based and the banks subject to the market disciplines that we are familiar with. One implication of this is that the high NPL and low capital adequacy ratios will continue to be a feature, with ebbs and flows, as capital injections get rid of the stock of NPL while the flow of NPL continues, but hopefully at a reduced pace as corporate governance improves. Professionalism cannot be acquired overnight.
Monetary policy decisions are taken, at the centre, by the Governing Council, but are implemented by the national central banks in a closely co-ordinated way. Strategy of the single monetary policy The Maastricht Treaty clearly defines the ultimate objective of the single monetary policy, that is to say maintaining price stability. However, for this it is essential to have a clear definition of price stability: we define it as a year-on-year increase in the overall Harmonised Index of Consumer Prices (HICP) of below 2% in the whole euro area. Bearing in mind this objective, our monetary policy strategy is based on two “pillars”. We have first assigned a key role to the monetary aggregate M3. This “pillar” is based on a reference value which we set at 4.5% for the annual growth rate of the broad monetary aggregate M3. The  1  concept of a reference value does not imply a commitment on the part of the Eurosystem to automatically correct deviations in monetary growth in the short term. Naturally, we also follow the counterparts of M3 closely, that is to say the sources of money creation, and especially lending to the economy, the evolution of government finance and capital flows with the rest of the world. However, it is common sense to say that monetary developments alone do not allow for a comprehensive assessment of the risks to price stability.