heightened uncertainty. in the current global environment of low interest rates, imposing negative rates is therefore a monetary policy necessity in order to re - establish a material interest rate differential vis - a - vis the major economies. the negative rate thus contributes to restoring the relative attractiveness of foreign currency investments for swiss investors and corporates. at the same time, it reduces the incentive for foreign investors to invest in swiss franc - denominated assets. over time, this fundamental mechanism will contribute to reducing the current overvaluation of the swiss franc. the snb is fully aware that, despite its established necessity, a negative interest rate policy does not come without detrimental side effects, notably for financial stability and the efficient use of capital, to name just two areas of concern. it therefore remains a policy instrument to be used with caution. fiction ii : a central bank can expand its balance sheet without risks the significant upward pressure on the swiss franc due to its status as a safe haven and the collapsed interest rate differential could, arguably, be addressed differently, namely through foreign exchange interventions over a prolonged period. as you all know, for the better part of my tenure at the snb, swiss monetary policy was focused on enforcing a minimum exchange rate of chf 1. 20 per euro. this exceptional policy measure was implemented as a temporary course of action to provide the foreign there are various further explanations for switzerland ’ s lower nominal interest rates, including, in particular, its track record of low and stable inflation. bis central bankers ’ speeches exchange market with clear guidance. it aimed at, and succeeded in, counteracting excessive upward pressure on the swiss franc in the aftermath of the financial crisis, which carried with it the risk of deflationary developments and severe disruptions to the swiss economy. the snb enforced the minimum exchange rate for more than three years. the success of this measure was primarily founded on the credibility of the snb, but also on outright interventions in the foreign exchange market. in consequence, the snb ’ s foreign exchange holdings surged from about chf 220 billion in august 2011 to chf 490 billion by the end of 2014, which corresponds to approximately 75 % of swiss gdp. why not persevere with the minimum exchange rate, instead of exposing the swiss economy to the downsides of negative interest rates and the challenge of a stronger currency? with this question in mind, let me turn straight to a second fiction regarding swiss monetary policy, namely, that an unlimited length

##110 billion support package for greece and the creation of the european financial stability facility, and extending to a strengthening of the stability and growth pact and finally a change in the treaty to allow for a permanent european stability mechanism. some of the discussions are still ongoing, and i will not comment further on this issue. the ecb ’ s position has been made quite clear. we are in favour of a “ quantum leap ” in the governance of the euro area ; it would ensure greater consistency between economic policies and the single currency. how big should the leap be? some go as far as saying that a single currency is viable only if there is a full fiscal union, with a common budget and a transfer system which can account for asymmetric shocks and avoid divergences in national / regional fiscal policies. the us would serve as a model here. there are indeed no precedents for a monetary union without a fiscal union. consequently, many think that a monetary and fiscal union should be the longer - term model for the euro area. the experience of german unification might also help us to understand whether a move towards full fiscal integration would indeed be desirable for the euro area. 2. centralised fiscal policy and monetary union the desirability of achieving a fully fledged fiscal union to complement monetary union can be assessed on the basis of the three main criteria characterising economic policy : stability, efficiency and equity. i would like to consider the first two and omit equity, which has a deeper political connotation and may be less relevant for the sustainability of a monetary union. let me start with stability. the key economic rationale for having a fully fledged fiscal union is to establish a common pool of resources that can be used to insure its members against adverse macroeconomic shocks and to reduce macroeconomic imbalances. in a monetary union, fiscal policy is the only instrument that domestic policy - makers can use in response to country - specific macroeconomic shocks. since monetary policy is uniform within the currency union, it cannot be tailored specifically to the economic conditions in each country. if, for example, a downturn proves to be especially pronounced in one country, the monetary stance adopted for the entire currency area may not be appropriate. this implies that fiscal policies may need to play an active role in stabilising macroeconomic developments at the domestic level. at the same time, the capacity of individual countries to adopt stabilising fiscal policies is very limited. in particular, if countries enter a downturn with