lucas papademos : policy - making in emu - strategies, rules and discretion speech by mr lucas papademos, vice president of the european central bank, at the banco de espana ( bank of spain ), madrid, 19 april 2004. * i. * * introduction i am very pleased and honoured to have been invited to speak here today at the banco de espana. thank you very much, governor caruana, for the invitation and your kind remarks. and thank you all for participating in this event. i believe that this is the first time that a member of the executive board of the european central bank has delivered a public address in madrid since the terrible events of 11 march. i would therefore like to take this opportunity to convey, personally and also on behalf of all my colleagues at the european central bank, our sincere condolences and our solidarity with the people of spain. we all stand united against these acts of terror, which have resulted in a great loss of life and have inflicted so much pain on so many innocent people. in difficult times like these, when europeans are drawn closer together, it is meaningful to focus on values and principles as well as on tangible proofs and actions which define our common identity and can pave the way towards a better and peaceful future. a specific and important symbol of european unity is our common currency, which is shared by more than 300 million citizens in 12 countries. for euro area central bankers in particular, there is indeed no greater a symbol of our european unity than the fact that we now have a single monetary policy and we are all part of the same central banking system, the eurosystem. as an important and active member of the eurosystem, the banco de espana plays a major role in the performance of all the system ’ s functions, and not just in the decentralised implementation of monetary policy. also in preparing, taking and communicating policy decisions, the eurosystem would not be able to function effectively without the valuable contributions of all its components. and the banco de espana manifestly enriches the policy debate and enhances the performance of the eurosystem. the euro and the single monetary policy have been in place for more than five years. the economic and monetary constitution embedded in the maastricht treaty defines the eu ’ s economic policy framework, which incorporates the main policy goals as well as a number of fundamental principles for good economic governance. these include price stability as the primary objective of monetary policy,

our credibility. the eurosystem clearly stands in the tradition of best practice in central banking – as exemplified by the bundesbank prior to the introduction of the euro. the eurosystem ’ s twopillar monetary policy strategy inherited the concept of the bundesbank monetary pillar – which my own previous institution, the banque de france had also chosen in january 1994 as soon as it became independent. the eurosystem ’ s two pillar strategy is built on the conviction that, in the medium to long term, inflation is a monetary phenomenon and that independent central banks have the strategy and the instruments to achieve price stability. the eurosystem ’ s track record proves that this important insight translates one for one to the monetary union context. i would like to take this opportunity to also express my gratitude, not only to axel weber but also to all bundesbank staff, for the commitment shown on a daily basis during the past twelve years and in particular during the financial crisis. the governing council of the ecb knows and highly appreciates the crucial contribution of national central banks to the smooth functioning of monetary union. the financial crisis has made more visible to a broader public the essential tasks that national central banks carry out day by day within the eurosystem. for the sake of brevity allow me to focus here on two such activities, and i am fully aware that there are many other tasks that equally deserve our full recognition. on both bis central bankers ’ speeches dimensions, the eurosystem benefited enormously from the bundesbank ’ s dedication to our common cause, and on both dimensions the bundesbank contribution found in axel its voice. the first task is financial supervision, the importance of which cannot be underestimated. for one thing, the information gathered in supervision has been particularly useful in the preparation of monetary policy decisions during the financial crisis. this has been especially true when and since the governing council of the ecb decided to introduce non - standard monetary policy measures to ensure the proper transmission of the monetary policy stance. the information also helps the governing council of the ecb assess the interconnectedness of national financial systems and vulnerabilities threatening financial stability in the euro area as a whole. in this context the bundesbank has done a crucial job in containing the fallout from the financial crisis. after the collapse of lehman brothers immediate and determined action was crucial to avoid a meltdown of the financial system in germany and the other euro area countries. the bundesbank under