From reading the interview off to one of the ECB members, you are asked to highlight (extract) the underlying concepts/theories/instruments in his responses.

Interview with Philip R. Lane, Member of the Executive Board of the ECB, conducted by Balzs Kornyi on 1^st December 2020. Transcript of the fireside chat at Reuters Global Outlook Investment Summit.

The pandemic has of course dominated your year but after nine difficult months, might we be turning a corner? An effective vaccine puts the end of the pandemic in sight. But its going to take some time to deploy this vaccine, so 2021 is still going to be difficult. From your perspective, whats the biggest challenge, the biggest risk in 2021?

As you indicate, what we have right now is a mixed story, which is the very good news that we have a credible route towards vaccination. That was, by the way, always the assumption in our baseline forecast, that there would be a medical solution rolled out in 2021. So, from our point of view, the fact that it looks like the vaccines are on their way confirms our baseline scenario and makes it less likely that we will have more severe scenarios. So, thats very good news. But of course, the trick is were in the middle of the second wave. Of course, there is already some progress in containing the second wave. But the reality is as I think all of the public health experts you will see on TV will tell you -- its going to be a mixed reality. We cannot live unrestricted lives until there is mass vaccination and, to me, the biggest challenge is making that adjustment: to realise and to benefit later in 2021 from as widespread vaccination as possible but, in the meantime, to reconcile the need to control the virus with the importance of supporting the economy.

If you translate that to monetary policy and your particular task in this, what does the ECB have to do in this period?

I think weve been clear and our most recent policy statement in October was extremely clear and really captures it: our role is to ensure favourable financing conditions. Right now, you can look at different measures. You can look at whats happening in terms of risk-free rates, the sovereign bond market, the terms and conditions that banks charge their customers, which is a very important indicator in a bank-based system. So, if we can keep financing conditions where they are these days, at a low level, that supports the economic recovery and offsetting the pandemic shock to inflation. And in that world we know and weve been saying that , for example, fiscal policy can be very powerful. In a world with low interest rates, the multiplier effect of fiscal policy[1] can be quite high, compared with normal conditions.

Just a few moments ago you hinted that perhaps the ECBs job is not to lower borrowing costs further but to maintain them at their current levels, and of course President Lagarde and Isabel Schnabel made similar comments. Are we interpreting your words correctly that your aim is not to lower borrowing costs any further but ensure they persist longer?

Let me emphasise the near and medium-term perspectives on that. Im going to remind you that, in our forward guidance, we do say that we are prepared to lower interest rates, if necessary, to support the convergence of inflation to our medium-term aim. So, in making these comments we are in no way suggesting that we are at the lower bound of our interest rate policy. But what we are emphasising, behind all of these comments, its a little bit like forward guidance. We know that the yield curve has drifted down to a low level. The forward guidance says look, you can not only think about if I were to borrow today, what do I see?. But it is a signal from the central bank that, in terms of the coming period, during this pandemic, were going to ensure favourable financing conditions. It provides a lot of reassurance. It reduces the risk of a sudden tightening of financing conditions, it should boost confidence, through that channel, in the same way as forward guidance does via interest rate policy. Its not just interest rates today but we reassure you that interest rates are not going to rise until there is more pressure on inflation. So in that sense, its to provide the forward guidance, to provide the confidence in this world of uncertainty that its not the case you are a firm or a household thinking about borrowing money that you are going to face any kind of sudden reversal in financing conditions.

Next week you will of course recalibrate your policies and you made it clear the pandemic emergency purchase programme (PEPP) and bank liquidity facilities will be the main instruments of your choice. But the ECB tends to work in packages, so should we expect you to touch other instruments as well or should we expect these two instruments to be the package?

From a policymaking point of view, were still nine days away. So its way too early to reach conclusions on that because, of course, the world evolves every day. But let me remind you, if you look at some of my speeches and others: we have done a lot of policies this year. Of course, the headline, the big ones are the PEPP and the revision of the targeted longer-term refinancing operations (TLTRO III) programme. But there is a wide array of policies in respect of collateral, in respect of swaps and repos and so on. So, I think its important not to infer that we are only looking at two programmes. But what is true is that these two programmes have been very effective ways to respond to the pandemic. It doesnt rule out any other marginal policy but it does say: look, if these policies have proven to be an effective way to respond to the pandemic, then of course we have to look closely at them in the context of next weeks meeting.

The Wall Street Journal this week reported that after some policy meetings over the last year you held private conversations with investment banks and economists to explain policy decisions. In retrospect, do you think these conversations, which were one-on-one conversations, if I understand correctly, were appropriate and do you plan to continue having such discussions?

Its very important whenever policy officials such as myself interact with market participants that its done in a very systemic, structured, planned, transparent way. So, in this communication policy, I would have these calls with individual ECB watcher groups thats essentially the community. And its not one on one, of course, because our rules say its important that I am accompanied by staff members in those conversations for transparency and note-taking. This is a long-standing issue of how policy officials should interact with the market. One of the core principles is not to be engaged before we make a policy decision. Thats why we have a blackout period. Once we have made a policy decision, and by the way, the days, especially the quarterly meetings when we have the new projection, even after the press conference we publish the new projections. So its in order to see if the information, the new public information thats come out that day, to see if there are any questions, to hear their feedback. It very much conforms with the key principles of how to interact with the market in relation to already published information. Its not to front-run future decisions. So, the timing, I think we thought a lot about it. Its a structured, systematic approach where we rotate across different types of ECB watchers. Its transparent, its in my diary. Its also true that we should always review and keep in mind our communication policy. It was a deliberate and structured approach in doing so, I think its part of a good communication policy. But, of course, we keep that always under review.

[1] The two major mechanisms of fiscal policy are tax rates and government spending. Typically, fiscal policy is used when the government seeks to stimulate the economy. Governments borrow money to spend on projects or return money to taxpayers via lower tax rates or tax rebates. The overall effect on the economy is the same as when the government seeks to target and improve aggregate demand.