Many observers fear that the forthcoming ruling by Germany’s Federal Constitutional Court will impose strict limits on OMTs, and that this could trigger turbulence. How big is that risk? I don’t know how the judges in Karlsruhe will rule either, and I have great respect for the court – from one independent institution to another. I think, though, that the views of market participants in New York, Frankfurt and Hong Kong are quite clear: the OMTs are fine the way they are, without any limitations being imposed. Is it really realistic to assume that the mere announcement of OMTs will be sufficient in the longer term? Jens Weidmann, President of the Deutsche Bundesbank, has said that one lesson from the crisis is the fact that announcements will be tested. BIS central bankers’ speeches  5  The principle of deterrence also applied in the cold war. But what matters is that we are completely ready to act. When the necessary conditions have been met, we will take a monetary policy decision. We’ve had extremely low interest rates worldwide for a long period of time, combined with unprecedented non-standard measures. The Bank for International Settlements (BIS) is warning that, this time, the exit will be even more difficult than in the past. Is it actually possible to exit this situation without turbulence? Otmar Issing said that an exit was a question not of technical possibilities, but of political will. This exit will certainly be more complex on account of the non-standard instruments.
We expressed our confidence in the convergence towards SAPI (a sustained adjustment in the path of inflation). Let me elaborate somewhat on the foundations of this confidence, looking first at economic data and forecasts and second at some principles of our monetary policy. Data and forecast In economics, it can be hard to know exactly where you are. Monthly and quarterly data can be quite jumpy and there are often multiple plausible hypotheses to explain them: measurement error; abnormal season effects; one-off effects like strikes or natural disasters; or a genuine change in the underlying economy. What happened to output in Q1 is a case in point. Was the slowdown from 0.7% real GDP growth in Q4 2017 to 0.4% in Q1 2018 mismeasurement errors across quarters? Unusually cold weather or a German influenza outbreak? A sign of concern about a potential trade conflict? Or a warning of a slowdown in underlying economic growth? The Governing Council judged that it was largely a moderation from the exceptionally strong growth of Q4 compounded by some temporary and supply-side factors at both the domestic and the global level, as well as weaker impetus from external trade.