economy remain shut down? that will depend entirely on the lockdown measures to be decided by the political authorities in consultation with the scientific committees that advise them. what is certain and quite clear is that the longer this period lasts and the longer the weeks of lockdown continue, the greater the resulting economic damage will be ; restarting will clearly be hard for certain sectors while for others it will be faster, but the precise conditions for restarting are rather uncertain. there was a time when it was said that the reboot would happen very quickly and very strongly. i am a bit dubious because i think that there are some sectors of the economy that will reboot very quickly and very strongly while other sectors will be much slower to reboot. clearly this will be further discussed. to give you a rather simplistic idea, every month of lockdown costs between two and three percentage points of gdp per annum. this means that for every month of lockdown the french 1 / 6 bis central bankers'speeches economy and the economies of the euro area contract by 2 % to 3 % annually. so the longer this lasts, the bigger the economic contraction will be. so then, in what terms should this crisis be described? this morning mr jean - claude juncker, the former president of the european commission, said in the newspaper liberation that this crisis will be less painful and less dangerous than the crisis in 2008 that you well know. do you agree with him? i would very much like to believe that, but i am not convinced. i think that this is a very severe crisis, which is temporary, but which will inflict damage on our economies that will probably affect certain sectors deeply and it will take time to recover from it. let ’ s be clear, it took time to recover from the 2008 financial crisis, especially because it was subsequently prolonged by a european sovereign debt crisis. in this current crisis, the speed of recovery will depend on two factors : how long the economy is shut down, or partially shut down, and the measures taken to keep the athlete fit to start racing again afterwards. there are many measures being taken currently : both at the monetary level – which is the remit of the european central bank and the 19 national central banks of the eurosystem – and then there are the fiscal tools, which are implemented by governments. and the two must go hand in hand in order to succeed in supporting jobs, through partial unemployment in most euro area countries and through the liquidity that we

jurgen stark : towards a stability - oriented policy framework speech by mr jurgen stark, member of the executive board of the european central bank, at the conference “ reconstructing the world economy – redesigning the macro - framework ”, organised by the korea development institute and international monetary fund, seoul, 25 february 2010. * * * ladies and gentlemen, in discussing the current macroeconomic framework, i will focus on the institutional aspects that have proved successful, in particular, from the european perspective. these are central bank independence, the centrality of price stability for monetary policy and the need to adopt a medium - term, rules - based perspective in the conduct of monetary and fiscal policies. the financial crisis has not contested or discredited these three principles. however, it is certainly true that other aspects of the international consensus framework merit some deep re - thinking. i will take this opportunity to share my thoughts on four such elements, namely inflation targeting, central banking as risk management, monetary policy and asset prices, and fiscal policy. the reference model inflation targeting, together with the canonised version of the new keynesian model on which it is predicated, is perhaps the main building block of the pre - crisis consensus paradigm. although they are closely connected, i wish to separate the policy prescriptions from the underlying model, and address each in turn. the shortcomings of the new keynesian modelling paradigm have been recognised before. but addressing them has not yielded a paradigm shift to overcome them. the first shortcoming of this paradigm is its inability to explain and recognise the importance of financial frictions and the role of money. money is at best ignored – and at worst derided – as a redundant and unnecessary complication. this has to do with the fragile theoretical foundations of the mechanisms which – in this paradigm – account for the connection between the real economy, financial imbalances, and the state of confidence and inflation. this disregarding of money goes hand - in - hand with the assumption of the absence of risk. the mainstream model excludes default. if assets are formulated at all, they all net out. no risk generated in the financial sector can affect the real economy. the financial crisis has clearly exposed the flaws in this assumption. it has led to a misapprehension of the root causes of the crisis and its propagation mechanism. liquidity and money are key for the ecb ’ s monetary policy strategy. far from showing that the ecb ’ s strategy lacks theoretical foundations,