2/8  BIS central bankers' speeches  All the countries that experienced an acute crisis – Greece, Ireland, Portugal and Spain – now have budgets with deficits below 3% of GDP and a positive primary balance in their current account, with the exception of Spain. Last year, Spain still had a primary deficit of 0.5%, but this year it is very likely that they will also make a surplus. In some cases, this adjustment in the primary balance was in the double-digits, which is huge. Our analysis, and the IMF’s, shows that the positive current accounts that all of these peripheral countries have built are the result of a structural adjustment. This is not about lower imports and weaker demand; it is about the improved performance of exports and structural adjustments. And that’s very important. Second, in terms of the banking sector, the capital level of banks everywhere has increased and the average common equity ratio of banks here is 14.3%. There is no bank below 11% in the euro area. That also represents a huge reduction of risk. Then, third, there is the BRRD [Bank Recovery and Resolution Directive], which rules that if there will be any collapse of banks, then no bailouts by the public sector can be engineered – at least before there is a private bail-in of 8% of the total assets of the bank. So that’s a big risk reduction for national government budgets and for taxpayers. Banks are also building up their bail-in-able securities.
The idea is that if the central bank uses an active policy to do so, then it’s to correct distortions that exist in financial markets and ensure that lending rates to businesses and households in the economy as a whole are at the right level to get to the level of activity that would be desirable. If there are rigidities and distortions in the private sector that do not engineer the smooth functioning of the economy, then public intervention is fully justified. It does not add up to manipulation because the reality is not perfect to start with. I’m just now thinking in very abstract terms; this was never discussed at the ECB’s Governing Council. This is my personal take on possibilities; it is not more than that. We didn’t start any discussion about the medium-term future of monetary policy, it’s too soon in Europe to start thinking about that. But I’ll just say it’s a possibility and it can work. We could buy more bonds to enforce it – the 33% 1/8  BIS central bankers' speeches  limit [that the ECB has on buying all of the outstanding stock of a country’s government bonds] is a self-binding decision by the Governing Council. That decision could be slightly changed, theoretically, of course. What about the use of the other non-standard measures? There is a view that some of the tools, such as the Outright Monetary Transactions (OMT) programme, are closely linked with the current ECB leadership and not as much with the ECB itself.