No visits to the Treasury Select Committee may seem like a blessing, but we have to ensure that the accountability still holds water. On that point, frankly, I think there should have already been more accountability for how the processes of the European Union could have created such a vast cost for an industry for the implementation of a directive which has not even yet been finally agreed, and for which I cannot give you a date. Largely unseen in the banking crisis has been the shocking cost of Solvency II. The second challenge with the use of judgement in supervision is that elsewhere we have seen a preference to have many rules, but often ones which can then be gamed. Paul Volcker put it nicely in his evidence to the Parliamentary Banking Commission. He said that people ask for clear and simple rules so that they can tell when they are in abeyance, but they typically fail to add that they want to know how to get round the rule too, but that is part of the deal. At the PRA we will apply judgement rigorously; sometimes you will agree with us, and sometimes you won’t. We will be clear and transparent in our judgements, and we will be accountable. Finally on the issue of the PRA’s approach to supervision, I want to assure you that we will take supervision of insurers just as seriously as we do the other lot. It is not in our nature to do otherwise.
But the situation for SMEs in the euro area overall is more difficult. Many are reporting a deteriorating financing situation. The availability of bank loans for SMEs across countries has become increasingly divergent. These developments reflect the fact that the economic and financial situation in the euro area remains challenging. I would like to use my address today to discuss that situation and to share with you the ECB’s views. I will focus on two themes in particular. My first theme will be the important steps being taken by governments to put the euro area on the path back to stability. Individually, they are addressing their deep-rooted economic challenges. Collectively, they are working to strengthen the foundations of the euro area. My second theme will be the measures taken by the ECB to maintain price stability and to remove unfounded fears about the euro area. These measures are essential to ensure that our low interest rates are passed through to the real economy. The current economic situation Let me begin with the current situation in the euro area. Unemployment is deplorably high. Overall economic activity is weak and it is expected to remain weak in the near term. And the growth of money and credit are subdued. In this context, inflation is well contained. We expect it to fall below 2% next year. Germany has so far been largely insulated from some of the difficulties elsewhere in the euro area. But the latest data suggest that these developments are now starting to affect the German economy.