31.07.2017  The European economy and monetary policy Inauguration of La Granda courses Luis M. Linde Governor  Mr Chairman of the La Granda courses, Mr Rector of the University of Oviedo, Mr Mayor of Gozón, Mr Secretary of the La Granda Courses, Authorities, dear colleagues: Let me begin by thanking Professor Velarde for his invitation to me to participate in the inauguration of the thirty-ninth edition of the now-classic La Granda courses. But first I should like to congratulate Professor Velarde on the Menéndez Pelayo International Prize he has recently received and which is just one in a long list of accolades. Juan Velarde is much more than an eminent academic. He is a true humanist whose work, anchored in different areas of the economy, has always included historical and social concerns where his deep-seated and – I would say – benign liberalism prevails. Professor, my warmest congratulations on your Menéndez Pelayo prize. The European economic recovery Moving on to the subject of my address today, I should like to share with you some thoughts on the euro area economy and monetary policy. I shall begin by reviewing the key features of the current expansionary phase in the European economies and the fundamental role that monetary policy has played in providing for its take-off. I shall then refer to the main challenges over the course of these difficult years for the European economy and to the need to complete the institutional architecture of the monetary union.
In the euro area economies, the high unemployment levels and the need to reduce significant debt ratios curbed the expansion of demand, while the fragility of banking systems hampered the transmission of monetary policy measures to the real economy. These factors obliged the ECB to take a different tack and turn to so-called nonconventional measures. Firstly, the interest rates on ordinary monetary policy operations were successively cut, placing the deposit facility rate at a negative level of -0.4%, which currently remains in place. Secondly, the ECB introduced a new long-term financing facility for the banking system, which was linked to the granting of loans to households and firms. Thirdly, in 2015, the ECB took the historic step of launching a quantitative easing programme by means of the large-scale purchase of public and private assets. Currently, purchases are being made at a monthly pace of € billion, and this is expected to continue at least until next December, whereby at the end of the current year the scale of asset purchases will be drawing close to 22% of euro area GDP. Lastly, communication has become a most important instrument for influencing agents’ expectations and heightening the effectiveness of measures. Specifically, the ECB has incorporated forward guidance on interest rates and the purchase programme into its communication.