ECB/Praet: Monetary policy at crisis times

20 February 2012

Lecture by Mr Peter Praet, Member of the Executive Board of the European Central Bank, at the International Center for Monetary and Banking Studies, Geneva, 20 February 2012.

Mr Praet focused in his lecture on:

• key elements of the institutional framework governing monetary and fiscal policy in European Monetary Union. Thereby, he pointed to the root causes of the sovereign debt crisis but also to the considerable progress made more recently in putting fiscal governance on more solid footing.
• the role of monetary policy in the midst of what turned out to be the worst crisis since the Great Depression, arguing that the ECB has boldly reacted to it with a series of both standard as well as non standard measures, in full preservation of its medium-term oriented mandate of price-stability.       

The sovereign debt crisis has brought to the spotlight the weakness of economic governance in the euro area. Important steps forward have been taken for improving fiscal governance and redressing the public finance situation in several member countries. At the same time, macro-economic imbalances across the euro area need to be addressed by suitable policies geared towards fostering competitiveness and spurring economic growth. In drawing the right lessons from this recent episode, the euro area has the chance to emerge strengthened from this crisis.

As regards monetary policy, the ECB response to the challenges has been swift and resolute. Besides the reduction in policy rates, the Eurosystem has implemented several non-standard measures that ensure the proper working of monetary policy transmission and the provision of liquidity to the euro area banking system. In particular with its most recent measures since December last year, the Eurosystem has crucially helped maintain the credit flow to the real economy.

At this stage it is essential to counteract any attempts that aim to burden monetary policy with tasks that are beyond its mandate of maintaining price stability or violate the principles enshrined by the Treaty. This is a key condition for monetary policy to remain an anchor of stability in turbulent times.

Full lecture

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