The governor of the Bank of Greece, Giannis Stournaras, expressed the assessment that in the near future a significant amount of liquidity will be required from the Central Bank through a combination of credit operations and a structural portfolio. He added that real interest rates will fall again to lower levels.

Speaking today at the EUROFI 2024 High Level Seminar, he argued that monetary policy must remain flexible in order to be able to deal with possible future disturbances to price stability, of any nature and direction.

He also underlined that today we are better prepared to apply the appropriate mix of monetary policy, with conventional or unconventional tools, in case of new challenges. We better understand what is effective and what is not, but also how to limit potential side effects in the financial system.

Referring to the banking system, he argued that the resilience of the euro area financial sector has improved significantly and offers a buffer against any future crisis episodes. Many measures have contributed in this direction, such as e.g. the creation of the (still incomplete) Banking Union, with the Single Supervisory Mechanism and the Single Resolution Mechanism at its core.

However, as he said, even more Europe is needed. “The further the integration progresses and the coordination of policies in the monetary union increases, especially with the completion of the Banking Union which I consider of utmost importance,” he said characteristically.

He defended the extraordinary measures taken by the ECB in recent years, stating that if these conventional and non-conventional measures, which reinforced each other, had not been implemented, inflation and the growth rate would have been at much lower levels and the resilience of the financial system would have been undermined. He also recalled the phrase of Mario Draghi in 2016, “if we had not taken action in recent years, we would have been led to a catastrophic deflation.”

He also emphasized that in a hypothetical scenario without the easing policy measures, bank lending and loan servicing would have suffered a serious blow, with adverse effects on banks’ revenues and credit risk costs. The same applies to the non-banking financial sector.