that markets react positively, if only progressively, to credible fiscal consolidation and financial reform. witness the success in ireland where 10 - year spreads have gone down from 14 % in july to around 8 % recently. second, we should try and delink bank and sovereign risk. in the future, this may call for more structural solutions, with deposit insurance and crisis resolution mechanisms firmly established at the euro area level. in current, unstable circumstances, what role should the central bank play? monetary policy should certainly stick to its mandate and ensure price stability in the medium run. in europe, with financial conditions tighter as a result of the explosion in sovereign spreads, increased uncertainty and loss of confidence, – as shown by the fall in most indicators – there are now more downside risks to price stability. it was therefore appropriate to lower our policy rates by 25bp, a decision reached unanimously by the governing council. second, we need to ensure that the banking system has access to liquidity – what is sometimes called the role of lender of last resort of the central bank. in this respect, the bis central bankers ’ speeches eurosystem has confirmed its policy of providing unlimited liquidity – at fixed rates – to the banking system until at least until the end of q2 2012. collateral policy has been adjusted to avoid the shocks and liquidity squeezes borne out of rating changes. dollar funding, based on the existing swap with the federal reserve, has also been made easier. finally, in a period of intense market disruption, it is essential to ensure that the monetary policy transmission mechanism actually works. this may involve temporary and exceptional interventions on those market segments where dysfunctions are most apparent. this is the purpose of the securities markets program ( smp ), initiated in may 2010 by the eurosystem. it is important to note that in our case, the objective was not to expand the monetary base. central bank money created through these purchases has been sterilized. there have been some criticisms against this bond buying program. but it is ; in my view, totally justified by our primary mandate. faced with a clear risk of completely disrupted financial markets, and with huge divergences in credit market interest rates, the ecb was in danger of not being able to implement a truly single monetary policy, nor to meet its primary mandate, i. e. maintaining price stability over the medium term in the whole of the euro area. there have been calls for more. both markets and some governments seem to

consider that the ecb should take a more aggressive stance in buying public debt. let me give you some perspective on the issue. in some jurisdictions, unconventional monetary policies have led central banks to purchase significant amounts of government debt – these purchases amount to 58 % of total debt issued since 2009 in the uk, 21 % in the us and between 9 and 10 % in the euro area ( there was a monetary policy objective in all cases ). although this was not the primary purpose, this policy stance has contributed to providing markets with an insurance, or even an assurance, against a potential dry - up in liquidity. in countries where significant amounts of debt have been purchased by monetary authorities, long - term interest rates have been kept at very low levels, irrespective of their fiscal situation. but this equilibrium could be unstable in a different inflation environment. indeed, markets seem to be aware of some inflation “ tail risks ” and are hedging against these risks through gold and the chf, whose prices have reached historical highs. in the euro area, we consider that any lasting backstop has to come from governments. this is why we have been asking for a speedy implementation and greater flexibility in the efsf and very much welcome decisions taken in this regard in july and in october. at this stage, therefore, the euro area is paying a double price. one for its mistakes and one for its virtues. the mistakes, for governments, was to allow the piling up of debt through unsustainable fiscal policies over a decade, and then to create ex nihilo a doubt as to their willingness to pay those debts. and we are also paying the price for our virtue and our refusal to liquefy public debt through massive monetization of our fiscal deficits. i believe that virtue will eventually be rewarded. in the next decade, markets and lenders will trust those currencies that, whatever the circumstances, are managed with one overriding priority : preserving price stability and the intrinsic value of the currency unit. on this fundamental basis, we can look at the future of the euro with strong and realistic optimism. i see the recent decision by the swiss central bank to peg the chf to the euro as a confirmation of this statement. conclusion history has taught us that financial crises can be extremely violent. the current turmoil in europe is no exception. in the most intense phases, it is difficult to imagine that there is light at the end of the tunnel. but history