to one of the rare free lunches in economics : benefits in the form of low and stable inflation, but no costs in terms of growth. by tearing down the walls between monetary, fiscal and financial policy, the freedom of central banks to achieve different ends will diminish rather than flourish. put in economic terms : monetary policy runs the risk of becoming subject to financial and fiscal dominance. let me explain these mechanisms a bit more in detail, starting with financial dominance. the financial crisis has provided a vivid example of how financial instability can force the hand of monetary policy. when the burst of an asset bubble threatens a collapse of the financial system, the meltdown will in all likelihood have severe consequences for the real economy, with corresponding downside risks to price stability. in that case, monetary policy is forced to mop up the damage after a bubble has burst. and, confronted with a financial system that is still in a fragile state, monetary policy might be reluctant to embrace policies that could aggravate financial instability. this underscores the importance of a well - capitalised and tightly - supervised financial system, a precondition for stable prices which monetary policy cannot establish, and which is the responsibility of other policy makers instead. the contribution of monetary policy is by seeking, through conducting a more symmetric monetary policy, to prevent financial turbulence, which could pose a threat to price stability. but often, the interest rate might prove too crude an instrument – it might not be efficient to punish the whole economy for the exuberance of a single sector. therefore, financial policy needs its own toolbox. according to the first nobel prize winner in economics, jan tinbergen, every economic policy objective requires its own instrument, otherwise success will be uncertain. by heeding his advice, we are practicing the art of separation. alesina, a. and l. summers ( 1993 ) : central bank independence and macroeconomic performance : some comparative evidence, journal of money, credit and banking 25, 151 – 62. bis central bankers ’ speeches strict financial regulation and supervision is needed to increase the resilience of banks and the financial system as a whole. and macro - prudential instruments provide solutions more tailored than the interest rate can offer. unconventional monetary policy measures, such as the very long - term provision of liquidity to banks or forward guidance that the central bank interest rate will not be increased within a foreseeable timeframe, cannot eliminate this problem. their contribution to monetary policy is

mr. tietmeyer considers the euro as a denationalised currency speech delivered by the president of the deutsche bundesbank, prof. hans tietmeyer, to the osterreichisch - deutsche kulturgesellschaft in vienna on 27 / 11 / 1997. i currency is more than just a part of the economy. a currency is always a reflection of its country, its politics and its culture. as joseph a. schumpeter, probably the most versatile austrian economist of this century, famously put it : a nation ’ s monetary system reflects everything which that nation desires, suffers, is. “ nothing reveals as clearly what a nation is made of as what it does in monetary policy. ” it is tempting to place schumpeter ’ s words - - just for a moment - - in the context of a supranational currency ( like the euro ). then the proposition would be that a single monetary system reflects everything that these nations ( note the change from singular to plural ) “ desire, suffer, are ”. for one thing, those words express the idea of a community which is bound together by a common destiny. ( even though the verb “ suffer ” sounds somewhat emphatic. ) that is because the single currency binds the people in the participating countries together in terms of money and currency, for better or for worse, for ever. after all, monetary union no longer provides for an orderly secession. for another, schumpeter ’ s words are a reminder of the necessary communality. if the monetary system reflects what the peoples of those nations want, what they do, and what they are, then it will be crucial to monetary union that the individual participating countries also want and do the same things ; in other words, that they attach largely identical aims and expectations to the single currency and also act accordingly - - at least in terms of their basic stance. otherwise, the single currency would contain the potential for conflict which could easily lead to real tensions. and, sooner or later, such conflicts would have a detrimental effect not only on the currency, but also on the economy, integration, and europe ’ s political and social culture. ii under the terms of the maastricht treaty, european monetary union will ultimately begin on january 1, 1999. the euro will then become the dominant currency in europe, at least in the money and capital markets. since the euro banknotes and coins will not be available until the end