country can be addressed with macroprudential policy, allowing for the appropriate heterogeneity, while countries remain subject to a single monetary policy ” 18. ray, h. ( 2013 ) : dilemma not trilemma : the global financial cycle and monetary policy independence, working paper 21162, nber working paper series. coure, b. ( 2015 ) : paradigm lost : rethinking international adjustments, speech ategon and joan von kashnitz lecture, clausen center for international business and policy, berkeley, 21 november 2015. beck, h., prinz, a. ( 2012 ) : the trilemma of a monetary union : another impossible trinity, leibniz information centre for economics. pisani - ferry, j. ( 2012 ) : the euro crisis and the new impossible trinity. bernoth, k., engler, p. ( 2013 ) : a transfer mechanism as a stabilization tool in the emu, diw economic bulletin, 1. 2013. constancio, v. ibid. bis central bankers ’ speeches there are a couple of other difficulties related to the use of national policies. the shock absorbing capacity of fiscal policy is in too many instances limited by the narrow fiscal space existing before the crises. the recession has further eroded fiscal positions and fiscal rules have failed to tame unsustainable fiscal paths so that the ability of fiscal policies in the eu to deal with another blow of crises is quite limited. also, a need for national macroprudential policy immediately opens the issues of harmonisation and coordination on the international level in order to avoid unintended consequences, which i will comment in more detail later on. additionally, for macroprudential policy to be effective it must be intrusive, affecting the “ normal behaviour ” of agents and markets 19, yielding benefits in reducing long - term costs generated by the systemic risk that makes it hard to attenuate public interest thus creating a central bank ’ s legitimacy paradox 20. unconventional expansionary monetary policy, which was pursued after reaching the zero lower bound, and out of the fear of “ the risk of doing nothing ” 21, may be risk - inducing by fuelling search for yield behaviour. abundant liquidity and low borrowing costs have the capacity to generate bubbles, confirming a notion that rational individual decisions may lead to irrational social outcomes – albeit as a reaction to highly non - conventional policies. when inflationary impulses eventually pick up, the present monetary support

increased in euro - area member states. however, the configuration of single monetary policy, coupled with national fiscal sovereignty and the no bail - out clause, has generated suboptimal policies and frictions that threaten the monetary union. with single monetary policy, commitment not to bail - out heavily indebted member states is necessary to eliminate potential for moral hazard. however, the actual euro - area experience demonstrates strong incentives for sovereign fiscal policies to “ trespass ” on the prudent fiscal stance, either in the expectations of non - enforcement of the no bail - out clause, with the implicit assumption that sovereign default will be politically unacceptable, or through a direct support of common monetary authority through special monetary operations. this uneasy triangle is usually referred to as the fiscal trilemma of the monetary union. such a “ holy trinity ” makes impossible the cohabitation of the independent monetary policy of a supranational central bank, national fiscal sovereignty and the no bailout clause 15. in order to ease the frictions stemming from national fiscal policies, the monetary framework of the euro area was reconstructed by implementing the elements of the banking union ( the single supervisory mechanism and the single resolution mechanism ), setting up the european stability mechanism ( esm, previously the european financial stability fund ( efsf ) ) as well as by starting the ecb ’ s quantitative easing program ( qe ). all these mechanisms should help to decouple bank distress and sovereign debt pressures. 16 the described trilemmas in the european economic and monetary framework, with the still absent synchronisation of real and financial cycles, have given birth to a specific quadrilemma that demonstrates difficulties faced by policy makers in the euro area. with supranational monetary policy concerned primarily with the overall price stability objective, symmetric ( global ) shocks transmitted through financial linkages and domestic ( national ) divergent cycles, the burden of adjustment has to be borne by national macroprudential policy. the absence of other adjustments mechanisms, such as a perfect labour mobility or a transfer mechanism in the form of unemployment insurance 17, adds to the burden on fiscal policy, which is already suffering from moral hazard issues. the vice - president of the ecb, vitor constancio, is right to emphasize that “ macroprudential policy is therefore essential in any economy as the business and financial cycles are not synchronised. even more so in a monetary union where vulnerabilities identified in each