To the extent that issuers and investors are unwilling to participate in TALF because of fears that their involvement might lead to unforeseen complications at a later date, this would lead to the unattractive outcome of underutilization and the achievement of only a portion of the potential benefits. Of course it is of critical importance in this facility and in all the programs instituted in response to this crisis that the interests of the taxpayer be protected, and the safeguards and restrictions on the use of TARP funds are designed to achieve this. However, I think it is fair to say that TALF got off to a relatively slow start because investors were worried that the use of TARP funds in TALF could restrict their ability to conduct their business activities more broadly, perhaps in unanticipated ways and potentially retroactively. Put simply, to the extent that the use of TARP monies creates stigma, this may limit the effectiveness of TALF and other programs that use TARP funds. Although we think these fears among market  4  BIS Review 69/2009  participants that use TALF are misplaced, such anxieties have had an impact on the program. Another challenge faced by the TALF is to increase the participation of real money investors (such as mutual funds, pension funds and insurance companies), many of whom are not permitted to use leverage.
Turning first to the economic analysis, according to Eurostat’s first estimate, the quarter-on-quarter growth rate of real GDP in the euro area for the fourth quarter of 2006 was 0.9%, which was above previous expectations. Our current assessment is that the quarterly profile of real GDP growth is likely to be somewhat smoother in response to the impact of indirect tax changes in one large euro area country than had originally been anticipated. The strength of real GDP growth in the fourth quarter is thus indicative of ongoing robust growth in the euro area. Both domestic demand and exports made significant contributions to real GDP growth, confirming the sustained and broad-based nature of the current expansion. The information on economic activity from various confidence surveys and indicator-based estimates supports the assessment that robust economic growth has continued into 2007. Looking ahead, the medium-term outlook for economic activity remains favourable. The conditions are in place for the euro area economy to grow solidly. As regards the external environment, global economic growth has become more balanced across regions and, while moderating somewhat, remains robust, supported in part by lower oil prices. External conditions thus provide support for euro area exports. Domestic demand in the euro area is also expected to maintain its relatively strong momentum. Investment should remain dynamic, benefiting from an extended period of very favourable financing conditions, balance sheet restructuring, accumulated and ongoing strong corporate earnings, and gains in business efficiency.