Similarly, bank refinancing operations, such as the TLTROs, can reduce banks’ funding costs and, ultimately, the cost of bank loans, thus stimulating aggregate demand and inflation.7 However, even though these measures have been highly effective in the euro area in present and recent circumstances, they do not completely eliminate the limits on the degree of potential monetary stimulus deriving from the existence of the lower interest rate bound. In consequence, central banks have introduced other tools with which to smooth that limit, the most common of these being forward guidance.8 This enables the central bank to offer guidance to the market as to how interest rates will evolve, or are expected to evolve, in future. For instance, in its monetary policy announcements, the ECB links the question of holding its interest rates at their present levels, or lower, to inflation developments in the euro area. In this manner, the ECB seeks to convey to financial markets, and to society at large, the conditions that would have to be met in order to begin to raise interest rates. Where short-term interest rates are close to their lower bound, forward guidance may stimulate the economy insofar as the central bank undertakes in a credible manner to tolerate inflation over the target level once the economic situation thus permits.9 Given that the real interest rate is the nominal rate stripping out inflation expectations, if the central bank is able to raise these expectations, it can reduce the real interest rate today, even if nominal rates remain constant.
These four key elements provide the context for the ongoing current debate on how best we can promote the single, integrated, European financial market - and I mean by “we” not just the authorities,  BIS Review 72/2002  1  who have an interest in the macro-economic efficiency of the market, but also market participants themselves, who stand to benefit at the micro-economic level from the new opportunities it will provide. But before I move on to that question perhaps I might go off at what may seem something of a tangent, and reflect briefly upon our own experience here in the UK as we moved - in fits and starts certainly but in the same general direction - from a heavily administered economic and financial system to one which is now very much market based. Even before I started at the Bank 40 years ago post-war controls had largely been dismantled. But the economic and financial system was still governed by all kinds of direct controls - exchange controls, credit ceilings - coupled with directional guidance, business restrictions - on the activities of building societies for example, the queuing of equity issuance, prices and incomes policies, public ownership of large parts of industry, and so on - all of which have now gone. It's true that plenty of regulation remains - reflecting public policy concerns relating essentially to competition, consumer protection and systemic stability. Indeed it has intensified in these areas.