, there has been more diversity in financial conditions across the globe due to differences in speed of recovery from the crisis, the state of balance sheets and variation in policy decisions. under these conditions, there is greater potential for adverse external policy spillovers since countries are at different points in the tightening - loosening policy spectrum. 7 / 10 bis central bankers'speeches in addition, lower bound constraints mean that it is more problematic for a central bank to offset an externally - driven tightening in financial conditions through domestic monetary easing. 10 furthermore, a tightening in financial conditions is especially damaging during phases in which domestic sectoral balance sheets are under repair. given these constraints, a welldesigned monetary strategy can provide a strong anchor for domestic financial conditions by providing clear forward guidance on the commitment of the central bank to meeting its mediumterm inflation target. internal spillovers its unique status as a monetary union of nineteen member countries means that it is essential to address also internal spillovers within the euro area. the high levels of trade and financial integration among the member countries mean that the scope for cross - border internal spillovers is especially acute. indeed, avoiding the disruptive impact of shifts in national currency values ( including from a political economy perspective ) was one of the motivating factors behind the formation of the monetary union. 11 let me focus on a particular type of internal spillover : if macro - financial conditions in an individual member country substantially deviate from the rest of the euro area, the area - wide monetary policy may not be optimal from the perspective of the country in question. 12 in this sense, the macro - financial conditions in the rest of the euro area spillover to this country through their impact on monetary policy. to mitigate the impact of this type of internal spillover, it is now widely accepted that national macroprudential policies can play an important role, especially in relation to differences in financial cycles across member countries. 13 in addition, taking due account of fiscal sustainability considerations, counter - cyclical national fiscal policies can contribute to macrofinancial stabilisation. in fact, recent analysis shows that there are complementarities between national macroprudential policy and counter - cyclical fiscal policies, which limits the burden placed on either policy instrument if both are simultaneously deployed. 14 through such mechanisms, the impact of internal spillovers within the monetary union and any potential financial stability side effects of the area - wide common monetary policy can be mitigated. conclusions in summary, the focus

regulation : this still places the heaviest demands on the central bank in terms of staff resources assigned to authorising, regulating and supervising the very large number of firms and funds involved in the business of exporting financial services. adaptation of the national system to comply with the requirements of the euro absorbed much of the bank ’ s work in the 1990s and into the new millennium, while a new emphasis on consumer protection responded to acknowledged weaknesses in that area. our currency centre rose to the challenge of printing a share of the new euro notes, with ever improving security features. but the design of the euro, topic of tonight ’ s t. k. whitaker lecture to be given by professor harold james of princeton university, did not, as many had assumed, protect members from macro - financial distress. the past few years have been probably the busiest ever for the bank as it has raced to stem or meet outflows and repair the damage to the banking system that has so undermined national prosperity. with industry promotion no longer part of the bank ’ s statutory mandate, the regulatory agenda has shifted into an unapologetically intrusive mode. regulations are being enforced with sizable penalties imposed for violations. a graduated but intensive and unremitting programme of specific required deliverables is being imposed on the banks to try to ensure that they will deal effectively with the admittedly challenging task of getting ahead of the still - growing mortgage arrears problem, both by getting those who can back on schedule, and modifying loans in the case of those who cannot do so. the bank is currently also playing its part in engaging with external partners in seeking to limit and smooth the impact on irish balance sheets of the indebtedness accumulated as a result of the overly expansive decision to socialise banking losses, to help accelerate recovery of employment on a sustainable basis. bis central bankers ’ speeches