Not only its monetary policy, and not only in Germany. We will keep explaining to our critics in Germany – and also to German savers – that their country is one of the main beneficiaries of the euro. A stronger euro area, with inflation of below but close to 2%, would be good for Germany. As for the debate we may have from time to time with some academics in Germany, I would say there is a certain irony in them taking us to task because we are focusing on our inflation target, since it is at Germany’s insistence that the ECB was given that mandate – and that mandate only – in the euro’s founding treaties, and in my view rightly so. 2  BIS central bankers’ speeches  Did the euro’s jump after your announcement on March 10 disappoint you? It doesn’t help your return-to-inflation goal… The ECB, as you know, doesn’t have a foreign exchange target. What I saw is that financial markets in general understood what we did, which is more important than the instant reaction of forex operators. The dollar/euro exchange rate is mostly driven by different monetary policies in the United States and Europe. What would be more worrisome for us would be a further decline of emerging countries’ currencies, and increased volatility of the pound sterling due to the EU referendum debate in the United Kingdom. Does the ECB have a plan for a possible “Brexit”?
This construction with companies that have invested in assets that are difficult to value and have a long duration and which have financed themselves in the short-term money market with a guarantee from the banks is a powder keg – and a powder keg where the powder has been piled up more quickly and to a greater extent than both the market and the authorities have been aware. The igniting spark came from the US mortgage market, but it could have come from other areas. 2  BIS Review 136/2007  Bad credits in the US mortgage market is the igniting spark In the United States the financial innovations have gone hand in hand with a rapid increase in loan volumes. As is the case in most of the world, it is mainly households’ mortgages that have increased. What distinguishes the United States in this respect is that a not insignificant portion of the mortgages have been taken by households with poor credit ratings. 1 These loans are called subprime loans. Although the subprime loans constitute a minority of the total mortgages, there are nevertheless significant sums involved. 2 It is worth pointing out here that of course it is not always wrong to grant loans for housing merely because the lenders cannot manage the banks’ normal, fairly tough criteria. But it is always necessary to carry out a proper credit assessment. And the lender should be paid for the higher risk through a correspondingly higher interest rate. None of this happened in the United States.