global stage. i hope you do not expect me to cover all these items. besides, since an eu presidency is a government - driven process, and since central banks are independent off political processes, i will try to confine my remarks to topics that are of a more direct interest to central banks. i will also seize this opportunity to share a few personal thoughts on how the emu ’ s governance could be further improved over the years. these reflections will be structured in two parts. in the first part, i will briefly highlight the ongoing challenges for the single monetary policy, and touch upon the macroeconomic outlook for the euro area. i will then take stock of key measures that have been taken to strengthen european economic governance, and point out some possible improvements and avenues that could be explored to further enhance the emu ’ s framework over the medium term, before concluding. ii. the global financial crisis and ongoing challenges from a monetary policy perspective the global financial crisis that started to unfold in 2007, by any historical standard, gave rise to very challenging economic and financial conditions. between 2007 and 2013, facing elevated pressures in several financial market segments as well as contracting economic activity, the ecb ’ s governing council adopted forceful and timely standard and non - standard measures. against the backdrop of the wealth of the eurosystem measures taken in there also was the benelux union signed in 1949 between belgium, the netherlands and luxembourg. bis central bankers ’ speeches response to the financial crisis, i will focus on the current euro area challenges from a monetary policy perspective and the measures taken by the eurosystem since 2014. an overview of the measures taken in response to the financial crisis covering, among others, liquidity management actions, changes to the collateral framework, supplementary longer - term refinancing operations, asset purchase programmes, and forward guidance, will be included as an annexe to the written version of this speech. importantly, it is because of the forceful measures taken between 2007 and 2013 that the ecb ’ s governing council consistently provided an anchor of stability and confidence throughout the financial and sovereign debt crisis. as a matter of fact, despite the severe tensions during the financial and sovereign debt crisis and the resulting volatility in economic activity and headline inflation3 inflation expectations remained firmly anchored at levels consistent with the governing council ’ s aim of keeping inflation rates below, but close to, 2 % over the medium term. throughout 2014, however, additional contingencies materialized, with risks extending to a

yves mersch : recent financial market developments speech by mr yves mersch, governor of the central bank of luxembourg, at the 50th anniversary of aci luxembourg, luxembourg, 12 october 2007. * * * since my first invitation to an aci event as a speaker a few months after assuming my first mandate 9 years ago, the markets have undergone many turbulent sequences, although i could not detect a correlation between market upheavals and my regular appearance at aci events. let me therefore thank the luxembourg chapter for inviting me again today. i feel honoured. after a first ripple in the first quarter of this year and an increasing number of central banks pointing to the need to reprice certain risks ( i gave a warning in that respect at a conference by the european institute in washington in april ) the market reaction over the last couple of months witnessed what needs to be seen as a basically healthy reaction to mispricing. this reaction however was accompanied by the unpleasant effects of a crisis of confidence among the participants of the global credit markets prompting central bank intervention. since i agreed to speak about the turbulence in financial markets, many actions have been taken and a policy agenda for drawing the lessons is emerging. allow me therefore briefly to highlight the main events, before commenting on the experience we acquired inside the eurosystem during these weeks and months with our elaborate toolbox of instruments and operations. i will conclude with some tentative lessons to be drawn in terms of transparency, valuation, market functioning and supervisory framework adjustment. at this stage of collecting evidence, i will not dwell on the macroeconomic consequences of this turbulence which took place against the background of a strong performance of the global economy. the momentum of past dynamics still outweighs potential downward risks to the baseline scenario. i. what happened in the markets if many expected turbulence, the specific features and the transmission mechanisms were less clearly anticipated. many were barking up the wrong tree : hedge funds and private equity were not the main culprits but suffered. let me sum up the unfolding of events in 6 points : 1. credit spreads reach record lows in the first half of 2007. the combination of relatively low interest rates for a long period of time, the trend to lay off credit risk out of balance sheets and to securitize and an increasing focus on short - term returns have led to a strong demand for credit risk, especially from nonbank investors. as a result credit spreads fell to all - time lows, leading to a mis