Jürgen Stark: Taking stock – where do we stand in the crisis? Speech by Mr Jürgen Stark, Member of the Executive Board of the European Central Bank, at the BMW (Bayerische Motoren Werke) Stiftung Herbert Quandt, Washington DC, 15 April 2010. *  *  *  Ladies and gentlemen, Introduction: macroeconomic developments and outlook In autumn 2008, the world economy entered the worst financial crisis and the deepest recession since the Great Depression. Both monetary and fiscal policies responded vigorously to this exceptional situation and contributed to the emergence of a recovery in the course of 2009. Hence, after falling last year, global activity is expected to grow by around 4% this year, while global trade is expected to grow by almost 6% (IMF January WEO update). Strong growth in emerging market economies in Asia is a major driving force behind these figures, while growth in many advanced economies is forecast to be weak. Questions can be raised as to whether such an uneven pattern of the recovery will prove sustainable. In the euro area, recent information indicates that the recovery has continued to expand in the first few months of this year. Looking forward, euro area growth is expected to remain moderate, owing to ongoing balance sheet adjustments in the private sector, weak prospects for the labour market and low capacity utilisation. Available growth forecasts for 2010 put it at, on average, around 1%.
From the very beginning, we have been aware of the fact that keeping our non-standard measures in place for longer than necessary would entail the danger of creating harmful distortions. Therefore, we designed the measures with exit considerations in mind. In view of the improvements in financial market conditions seen since last spring, we have started to gradually phase out some of them. More specifically, we have stopped providing liquidity in foreign currencies, and we have stopped operations involving maturities longer than three months. Also, we have decided to return to variable rate tenders in the regular three-month operations towards the end of this month. However, the Eurosystem will continue to provide liquidity support to the euro area banking system at very favourable conditions in its shorter-term refinancing operations (that mature after one week and after approximately one month). We have decided to do this for as long as necessary and at least until mid-October this year. The speed and path of the subsequent gradual phasing-out of the non-standard measures will depend on economic and financial market developments. The remaining measures are not many. They include, inter alia, the tender procedures to be applied in the main refinancing operations and the operations with a duration of one maintenance period, approximately one month (which could be returned to variable rate tenders). All our actions will remain fully in line with the objective of maintaining price stability over the medium term. We do not know today what normality will look like after the crisis.