the statutory mandate of our central banks to deliver the assigned objectives. any formal agreement casting doubts on this principle and causing inflation expectations to slip away would be extremely costing. considering all this, the road of coordination, understood as entering into formal and binding contingency plan agreements, appears quite narrow. finally, do we need more cooperation? • the answer in this case is probably positive. even if we do not necessarily need to coordinate ex ante to attain the final goal, it is quite evident that the increasing interdependencies among the economies complicate the conduct of monetary policies a great deal. in the new environment the case for reinforcing international cooperation is strong. and i do not exclude that particularly for small open economies this may mean a strong incentive to join or to create monetary unions ( an extreme form of cooperation ). • we are seeing that forms of cooperation are becoming more and more crucial in many fields, such as in liquidity provision policies, in financial institution regulation and supervision, in order to tackle possible systemic crises, avoid regulatory arbitrage, ensure a level - playing field. • in the monetary policy field, there certainly is a high degree of interaction among central bankers, for example through their frequent participation to bis meetings in basel. it is indeed essential to ensure a continuous exchange of views, full understanding of each other ’ s goals, policy intentions and possible spillovers of see, for example, e. gaiotti ( 2008 ), ” has globalisation changed the phillips curve? firm - level evidence on the effect of activity on prices ”, banca d ’ italia, temi di discussione, no. 676. see, for example, m. obstfeld and k. rogoff ( 2002 ), “ global implications of self - oriented national monetary rules ”, quarterly journal of economics, may, and g. corsetti and p. pesenti ( 2005 ), “ international dimensions of optimal monetary policy ”, journal of monetary economics, vol. 52 n. 2. different policy options. in some cases this may lead to a common understanding that a particular direction of policy is in the interest of all parties involved. i believe that the situation we are facing nowadays illustrates this case rather well. • we are observing an emergence of strong inflationary pressures around the globe. monetary policy at the world level appears to be quite expansionary. short - term real interest rates are negative in the us and are very low or negative

same vein i might describe european monetary union as beauty and the beast. the beauty of it lies in intra - european exchange rate certainty. and if you don ’ t find that instantly seductive i suggest you speak, as i have, to some of britain ’ s exporters. they have seen, over the past six months or so, an erratically sharp appreciation of sterling, against the core european currencies in particular, which can ’ t be adequately explained in terms of economic fundamentals. but beauty comes in a package along with the beast, and the beast in this case is the single monetary policy - the single, one - size - fits - all, interest rate. the trouble is that it may not in the event suit the domestic monetary policy needs of the different individual euro - area countries. and if you don ’ t find that instantly repulsive i suggest you ask yourself how, at this particular juncture, we could keep the economic porridge - if i may mix my fairy stories - at just the right temperature if we were obliged now to have german - level interest rates. now you can ’ t just hope the beast will never appear. i don ’ t know of any serious analysis that doesn ’ t acknowledge that tensions could arise between the domestic policy needs of the different member countries - as a result of different cyclical positions, or different fiscal policies, or as a result of external shocks which affect some member countries more than others, or as a result of structural changes in one member country as against another. the risks, like the potential benefits, are, as i say, real. you might more reasonably hope that beauty ’ s beast will turn into prince charming - and that all their problems turn out to be little ones. but i have to tell you that it was always at this point in the story that i began to wonder if my mother was making it all up! in any event, you need to be rather confident that the potential tensions are indeed likely to be minor, or at least short - lived, because, if they do turn out to be serious, then you could be stuck either with a weak euro - and more rather than less inflation, higher rather than lower interest rates over the medium - term, and exchange rate instability against outside currencies - or, if the european central bank is allowed to do its job in accordance with its statutes, you could be stuck with persistent stagnation and unemployment across the economically weaker parts of the euro - area.