a serious risk of the unanchoring of these expectations. our decision demonstrated our determination to continue solidly anchoring inflation expectations including in the turbulent circumstances that we had to cope with. this demonstration of alertness proved extremely useful in the period that followed, after midseptember, when we had to guard against both deflationary risks in the short term and inflationary risks in the medium and longer term. after the acute intensification of the crisis ( and following the reduction of the ecb ’ s policy rates in october 2008 ), nominal yields at two and three - year maturities fell in the euro area, as shown in figure 1. this partly reflected private expectations that the cut in policy rates would prove persistent. at the same time, as revealed by the developments in break - even rates illustrated in figure 2, private expectations regarding euro area inflation remained correctly anchored, even at these relatively short horizons. by implication, real rates at such maturities fell substantially, as shown in figure 3. to the extent that real rates are the relevant determinant of private spending – as canonical models of transmission would suggest – the evidence points to significant monetary easing in the euro area. this very significant monetary easing was made possible by changes to the policy rate that were of a magnitude permitting us not to run into lower - bound constraints. 27 of course, extracting relevant information from financial market prices – as is implicit in these charts – is particularly difficult at times of market turmoil, when liquidity premia and safehaven effects may be larger than normal. such caveats imply a need for caution when interpreting these developments. 28 nonetheless, the evidence supports the view that a central bank ’ s ability to ease monetary conditions – and thereby support the stabilisation of inflation and output – is significantly enhanced by its ability to anchor private expectations. the effectiveness of the ecb ’ s interest rate decisions is reflected in the continued credibility of the ecb ’ s monetary policy. notwithstanding the substantial economic and financial shocks experienced recently in the euro area, longer - term private inflation expectations have remained securely anchored at levels consistent with price stability. by way of illustration, the average private inflation forecast at the six to ten - year horizon ( as collated by consensus economics ) was 1. 9 % in june 2009. ten - year break - even inflation rates derived from indexed bonds also hovered at levels just below 2 % ( see figure 4 ). even at the peak of the crisis, there was no disc

the financial sector in the euro area ( see figure 5 ). 31 the ecb ’ s approach contributed to contain the rise in money market spreads last autumn, before helping to reduce them substantially thereafter ( see figure 6 ). however, such measures alone were far from being sufficient in order to normalise conditions in the market. to the extent that ongoing tensions reflected financial institutions ’ need to take into account losses, increase capital and address a general lack of confidence, other public authorities – fiscal authorities, supervisors and regulators – and, ultimately, banks themselves needed to act. further progress in this regard remains urgently required. 32 against this background, it is crucial that central banks act to build and sustain confidence, which is a scarce commodity in times of crisis. policy - makers must always display sang froid – if i may use a french synonym for “ steady - handedness ” – and keep their composure, particularly in the most demanding and turbulent of times. the design of the ecb ’ s nonstandard measures reflects these concerns. to the extent possible, they are a continuation of our operational framework prior to the emergence of market turmoil. moreover, from the outset, they have recognised the need for a credible exit strategy, so as to ensure the independence of the ecb and the credibility of its focus on price stability. the governing council will ensure that the measures taken are quickly unwound and the liquidity provided is absorbed once the macroeconomic environment improves. concluding remarks the exceptional challenges faced over the past two years have required monetary policy action unprecedented in terms of its nature, scope and magnitude. very demanding circumstances have called for bold – yet solidly anchored – action as events have unfolded. we believe that what i would call the “ virtuous triangle ” of credibility, alertness and steadyhandedness – jointly serving to solidly anchor inflation expectations – has served us well both in periods of relative calm and in very demanding and challenging uncharted territory. before coming, i read the conclusions i presented here in jackson hole exactly four years ago with some anxiety, as you can imagine … i saw that, fortunately, risks ahead had not been omitted : “ we have to stand ready at any time to weather the materialisation of new risks. [ … ] being intellectually and conceptually ready is extremely important. ” now that we have a better idea of the dramatic ways in which risk can materialise in the present global economy, we are all, more than ever, convinced that being “