Concerning the macroeconomic environment, most of you will remember the deadly combination of high inflation rates and low or negative growth that characterised our economy from the mid-1980s way into the 2000s. Following the high levels of inflation, suppliers of finance inevitably sought to obliterate negative real returns on their investments by raising interest rates to levels of inflation and in many instances above. Furthermore, the low levels of economic growth exacerbated the adverse perception of borrower risks in the economy such that suppliers of finance only concentrated on servicing their existing small blue-chip customer base that survived the harsh economic environment. This environment, Ladies and Gentlemen, has played a very critical role in cementing the high cost of finance. At a micro-structural level, a poor credit culture is also another venomous factor that has had its own share of supporting the high cost of credit. Bad borrowers, who regularly borrow from several institutions with little or no intention to repay their loans, have also been cited as one reason for commercial banks’ relatively high non-performing loans, which in turn fuel high interest rates. Non-repayment of loans does nothing but muddying the waters for even good borrowers with profitable projects, and in order to stay afloat banks have responded by maintaining their loan rates high. Ladies and Gentlemen, in recognition of the shortcomings in the functioning of financial markets and the obtaining high cost of finance, the Government has instituted policy measures aimed at correcting imbalances in the economy and restoring macroeconomic stability.
If we look beyond uncertainties, we have also received positive news; in particular, recovery is underway in Europe. As you may know, a meeting of the ECB Governing Council will be held in three days, so I have to respect a silent period and I will not speak on monetary policy matters. But I can emphasize that, in response to weak inflation and heightened uncertainties, the Eurosystem, of which the Banque de France is a member, has acted decisively. In addition, several European countries have implemented structural reforms since the onset of the crisis and, at the same time, the EU and the euro area have taken significant steps to enhance economic and financial integration and stability. All these efforts have strengthened the euro area’s resilience as shown by limited reactions to Brexit or the US elections or by the unaffected, steady recovery in the euro area. 1/ Changes in economic conditions [Slide 2] In Europe, economic recovery is underway. Europe is continuing to recover, at 1.7% in 2016, and is expected to carry on recovering in 2017. Euro area growth is robust since it is supported by domestic demand, i.e. household consumption and corporate investment. New more detailed euro area growth and inflation projections will be published on 8 December. It is particularly important to note that labour market conditions are improving and unemployment is receding. In the euro area, on the past 4 years, the unemployment rate has dropped from 13% to 9.8% last October and is at its lowest level in four years.