Today, I want to explore those deeper questions and what they mean for policy. But before raising the pessimists’ challenge, let me first keep with recent practice by setting out this year’s reasons for optimism. Grounds for optimism The news from the UK is positive. Inflation has fallen, from more than 5% in 2011 to 2.2% now, jobs are being created at a rate of 60,000 per month, and growth is – for the moment – the strongest in the advanced world.1 This recovery is relatively recent, having started in earnest during the second quarter of the year. Its timing and pace caught most unawares. Certainly, the cumulative run of economic surprises has dwarfed those of the other major advanced economies (Chart 2). With the wisdom of hindsight, there were three main drivers of the recovery: a marked reduction in extreme uncertainty (Chart 3); significant progress on repairing the core of the financial system, with risk-weighted capital ratios doubling in recent years; and a marked improvement in household balance sheets, where debt to income ratios have fallen by about 30 percentage points. Together, improved access to finance and raised expectations of future prospects led to a reduction in precautionary savings by households, a modest recovery in consumer spending, a revival in housing investment from very low levels and an increase in business confidence to a 15-year high.
Benoît Cœuré: Ensuring the smooth functioning of money markets Speech by Mr Benoît Cœuré, Member of the Executive Board of the European Central Bank, at the 17th Global Securities Financing Summit, Luxembourg, 16 January 2013. *  *  *  Ladies and Gentlemen, 1 It is a pleasure to speak to you today at this annual Global Securities Financing Summit organised by Clearstream / Deutsche Börse Group. In my remarks today, I will talk about the smooth functioning of money markets and the role of market infrastructures in this respect. The speech is composed of two parts. I will start with some comments on developments in the euro area (interbank) money markets. As you are well aware, the financial crisis and the subsequent sovereign debt crisis have led to a gradual shift from the unsecured to the secured segment of the money markets. Moreover, the crises have exposed the weaknesses of certain financial institutions, causing the European interbank money market to fragment. Fragmentation has occurred between cash-rich and cash-strapped banks and also between different jurisdictions, leading to a “renationalisation” of money markets. Since money markets can be a source and a propagation channel of financial instability, it is important to ensure their proper functioning and mitigate the potential risks they pose. In the second part of my speech I will consider the role of market infrastructures in ensuring well-functioning money markets.