What is the conceptual framework for the performance of central bank functions today? That is to say, how do they decide on their monetary policy stance given the economic situation? Although there are differences between central banks, I believe it is possible to generalise by saying that the prevailing framework is based on the idea that, as a result of various economic frictions, including notably price and wage rigidities, the economy may deviate from full employment and stable prices. The central bank is capable of influencing the state of the economy through changes in the nominal interest rate. These changes affect in turn the real interest rate, i.e. the interest rate adjusted for inflation, which is the relevant one for the investment and consumption decisions of firms and households. 4/7  Thus, by indirectly affecting the spending of economic agents, the central bank exerts influence over inflation, attempting to stabilise it at moderate levels. With this objective, the central bank attempts to ensure that the real interest rate is as close as possible to the economy’s “natural” interest rate, i.e. the rate that would prevail if the economy did not suffer from the frictions that I mentioned. The natural rate, which in recent years has given rise to endless debate among economists, depends on structural parameters, including most notably demographic developments and technological innovation. If the actual interest rate is above the natural rate, the monetary policy stance is contractionary, leading to an excessive decline in prices and economic activity.
For the first year, the Plan managed to trigger around EUR 76 billion of investment in Europe. The action plan on the “Capital Markets Union project”, launched in September 2015, aims at diversifying the way the European Union economy is financed. The objective is to achieve a better balance between bank credit and market-based financing. France is a euro area frontrunner in this field, with markets providing 40% of the financing for its economy. Various initiatives are already well underway, like the framework for simple, transparent and comparable securitisation instruments, or the revision of capital requirements for investment in infrastructure by insurance companies. The Juncker Plan and the Capital Markets Union should complement each other and the Banking Union, which is already in place, to fully deliver their results in terms of growth and investment. Therefore, I prefer the concept of a “Financing and Investment Union” rather than a “Capital Markets Union”, as it better reflects the ultimate objective which is growth, thanks to a better mix of financing instruments including, but not limited to, capital markets [Slide 8]. Significant amounts of savings are available in the euro area and these should be directed towards long-term assets, as well as to those projects and countries that need them. Innovative schemes need to be developed at European level, such as European venture capital funds, in order to support the creation and growth of new businesses. The composition of investments is equally important, as too little money is devoted to R&D and long-term investments.