What surprised us more on the negative side was the slow transmission of easier financial conditions on current and future inflation. 2  BIS central bankers’ speeches  So what have you learned so far? Our own experience with a negative deposit rate was more favourable than we initially thought. We then went to minus 0.20. Since then we also have the experience of smaller countries which cut the rates to even more negative levels. We also reopened the discussion on the zero lower bound. There is no decision which has been taken but it is true that, given the experience that we have seen, we thought in the Governing Council that there was the case to re-discuss the lower bound. Have you looked at what other central banks have done? Yes but one needs to be very careful when looking at the experience of other countries. Each central bank works in a different environment, what you see in a small open economy is not necessarily applicable in a larger zone. Could the euro area tolerate minus 0.75 percent, like, for example Switzerland? In terms of level, I wouldn’t have any judgement in terms of ‘they can do it so we can do it’, that would be too simplistic. You have to look at the specificities of each one. What’s your thinking on how to avoid the so-called ‘Cliff Effect’ if QE were to come to a sudden end? We are very well aware of that.
That’s the most pessimistic view. I don’t take that view, I think it’s extreme. Indeed, after our communication at the last Governing Council meeting in Malta, you have seen that inflation expectations, five-years-five-years, have recovered – which is not the case for oil prices. It’s not a “normal” recession followed by a “normal” recovery. We have a cyclical recovery, but recently we have additional downside risks to our scenario unfortunately. Is there a point at which the ECB’s assessment of risks to the economy starts to actually erode confidence? We say clearly that we have a cyclical recovery, which is moderate. The investment cycle is quite weak still. We know the recovery is fragile. There are a number of geopolitical issues that weigh on confidence in general. This fragility is a fact of the environment. I think what is different about the recovery is that this is the aftermath of what some have called a balancesheet recession, and that starts to be better understood now. It’s a stock adjustment, there are legacy problems which our societies have big difficulties in addressing. You have still in a number of countries non-performing loans weighing on the balance sheets of a number of financial institutions. We also see that insufficient changes in the way that European institutions function have been weighing on the recovery. What do we still need in terms of European reform? We have gone a big part of the way with the banking union, but there the last miles are very important.