an increase in the discount and lombard rates. manfred lahnstein, state secretary in the federal ministry of finance, presented his critique before the central bank council and then went public with his misgivings. he expressed concerns that the policy rate hikes might endanger the economic upswing. as it turned out, the german economy expanded at a real rate of 4½ % in 1979, even though policy rates were increased. the bundesbank, then, did well to prevent the global inflationary tendencies from spilling over into germany more strongly than they did. because the bundesbank held its ground in both these cases and refused to be knocked off course, the die welt newspaper once dubbed it in retrospect the “ bulwark on the main ". that was praise indeed for the bundesbank, of course. for it had resisted the political pressure not because it was indifferent to the macroeconomic prospects, but it firmly believed, even back then, that monetary stability is the best contribution a central bank can make in the long run towards high levels of employment and sustained economic growth. it was milton friedman who once wrote that the best thing a central bank can do for the economy is “ prevent [... ] itself from being a major source of economic disturbance ". he continued : “ our economic system will work best when producers and consumers, employers and employees, can proceed with full confidence that the average level of prices [... ] will be highly stable. " but i am convinced that the bundesbank only prevailed in its skirmishes with politicians because it could count on the general public ’ s appreciation of the merits of a stable currency. this brings me to the third of the key factors in the bank ’ s success which i mentioned earlier on. a policy strictly geared to stability only stands a chance of success if the general public is sufficiently aware of the merits of stability. that ’ s because, in the long run, it is not right for democratic states to have a monetary policy which runs counter to public opinion. on this topic, otmar issing once said that each country gets the inflation it deserves. ladies and gentlemen these three pillars – a narrow price stability - driven mandate, independence, and a stabilityconscious general public – helped the bundesbank over the decades to keep the deutsche mark exceptionally stable. between 1956 and 1998 the average inflation rate in germany was the lowest of all the g7 countries, without putting a strain on employment. but

forget that adjustments will always be necessary to safeguard prosperity. this is especially true for the european crisis states. bis central bankers ’ speeches but more is required to ensure that monetary union can once again function properly as a whole. from now on, it must not be possible for the problems of individual countries or banks to jeopardise the entire system. an operational framework which reinforces the principle of liability and reduces mutual dependencies brings us a good deal closer to achieving this goal. i would like to thank you for your attention today – but, then, this is something i have always been pleased to receive in darmstadt. i am now very much looking forward to our discussion! bis central bankers ’ speeches