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Press, Journal Article

largely as they please. Not only does this damage the reputation of the European institutions,

it also impairs the soundness of public finances in the member states.

Unsound public finances can make it more difficult for monetary policy makers to fulfil their

mandate of ensuring price stability. It was precisely to protect the single currency that these

fiscal rules were agreed in order to prevent monetary policy from playing second fiddle to

fiscal policy and from coming under pressure to make high levels of debt sustainable through

low interest rates.

Ladies and gentlemen

It is not only in the United Kingdom that the EU is seen as a canvas on which to project the

drawbacks of globalisation and migration. Euroscepticism exists in other EU member states,

too, and is possibly even strengthened by the fact that Europe breaks its own rules. I can

therefore only reiterate what the Federal Chancellor said on Tuesday: "A successful Europe is

a Europe that respects its treaties and keeps its promises."

Euroscepticism in the United Kingdom was so strong that, despite numerous warnings about

the economic consequences, the majority voted in favour of leaving the European Union. For

the first time in the history of European integration, a country wishes to leave the EU.

This decision is very regrettable and, in my eyes, a mistake. But it should be respected and we

will have to deal with it. It would appear that it is becoming harder and harder to convince

people of the benefits of the European Union and to encourage them to believe in Europe.

The decision marks a turning point both for the United Kingdom and for the EU as a whole

and we have no way of knowing exactly what the consequences will be.

Although the result of the referendum appeared to take the financial markets by surprise - at

least judging by the sharp drop of 11% in the value of the pound sterling on Friday - all things

considered, the reaction has not been disastrous so far.

The search for safe investments has led investors towards government bonds, which has

pushed long-term interest rates back down and caused the yield curve to flatten again. The

stock markets also recorded price losses and the pound sterling remains under pressure. But

overall, financial markets responded calmly and there were no signs of panic.

This was probably because, among other things, the vast majority of banks and supervisory

bodies had treated the Brexit scenario with the seriousness it deserved and had been prepared

for that outcome. Another reason for the lack of severe disruption is that banks are now far

more resilient than they were in the autumn of 2008. Nowadays, thanks to tighter regulation,

they hold more capital and are therefore more robust.

Even so, it should be borne in mind that the fall in long-term interest rates and the further

flattening of the yield curve will probably put more pressure on banks' earnings, which are

already squeezed. That alone is reason enough to doubt that we are already seeing the new

equilibrium prices in the financial markets. This means that a prolonged period of uncertainty

is a distinct possibility.

The ECB, along with other major central banks, has therefore announced that it will supply

additional liquidity if required. So far, this has not been necessary.

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