on monetary financing, since we have placed a number of safeguards on our interventions. we do not buy government bonds in the primary market, which is explicitly forbidden under article 123. and neither do we act in the secondary market in a way which could be perceived as equivalent to acting in the primary market. the eurosystem has put in place a blackout period, and so does not buy in periods around the date of a new issuance. purchases are also subject to an issue share limit and an issuer limit. these limits ensure that we would not constitute a blocking minority for collective action clauses if such clauses were ever triggered. the european court of justice explicitly highlighted these limits when deciding upon the lawfulness of our actions. second, it is proportionate, in the sense that it is both necessary and suitable to secure our price stability objective. as short - term interest rates move closer to their effective lower bound, it inevitably becomes harder for central banks to steer the economy by means of conventional policy. so if inflation is too low for too long – as is the risk in the euro area today – other tools become necessary. two years ago, the governing council introduced several non - standard measures to unclog the transmission mechanism and avoid a credit crunch. we coined these measures “ credit easing package ”. in january last year, we finally opted for large - scale asset purchases when faced with a period of weak growth, when already low inflation rates were falling further and we saw risks of inflation expectations destabilising. like our previous measures, these purchases belong to the category of credit easing. to fulfil our mandate we need to make use of all instruments at our disposal. the app is a suitable tool because it acts directly on financing costs in the real economy. rather than attempting to boost the economy only through the short end of the curve, it directly lowers yields at longer maturities, decreasing them by compressing the term premium, which in turn influences the cost of credit for firms and households. third, we have designed the programme to limit distortions in relative prices which might have unwanted allocative and distributional consequences. with our government bond purchases we “ mirror the market ”, which means that our interventions are spread across issuers from the various euro area countries on the basis of the ecb ’ s capital key. together with the issuer limits, this ensures breathing space within and across markets for efficient price discovery. indeed, even though yields are very low for certain sovereign issue

( ii ) pegs or managed floating with the euro as a reference currency ( croatia, fyr of macedonia, romania and serbia ) ; and, ( iii ) independent floating ( albania ). in addition, there are two territories within serbia and montenegro ( kosovo and montenegro ) where the monetary and exchange rate policy is determined by their unilateral euroisation - an issue to which i will return to later in my remarks. as the title of the panel discussion that will take place this afternoon highlights, country specific circumstances have called for different choices of monetary and exchange rate policy and changing circumstances may have called for changes in the approaches to be followed. i will not expand on this issue further than to emphasise that regardless of the actual monetary and exchange rate framework chosen, it is crucial to consolidate a culture of price stability, buttressed by independent central banks. outside the realm of monetary and exchange rate policy i would like to briefly touch upon fiscal and external developments. in the area of fiscal developments, it is fair to recognise that the fiscal deficit for the region as a whole stands at its lowest level, in terms of gdp, since the beginning of transition. nevertheless, this should be interpreted with caution, particularly in light of the very positive output developments that have been observed recently. the more positive side of the economic cycle provides in fact a fitting opportunity to procede further with fiscal consolidation, as well as with the necessary reforms of the structure of fiscal expenditures and revenues. developments in the external balances of the countries in the region provide a sobering reading. current account deficits have increased over the last three years, and stood, for the region as a whole above 8 % of gdp in 2003. while these deficits may partly stem from a natural and welcome recapitalisation of the economies in the region, fast credit growth may have contributed to exacerbate the current account deficits in a number of countries. of course, given the low levels of financial intermediation that characterise the economies in the region, the increase in lending activity is to some extent a welcome sign of a financial sector that is performing its role within the economy as a whole. however, given the links that have often been identified between lending booms and banking and currency crisis, it is clear that authorities in the region had in a number of cases to take steps to avoid credit growth that may be too fast. more broadly, countries in the region still lag behind those in central eastern europe and the