. yet critics raise a number of objections to these arguments. first, they claim that the risks to price stability in the current environment are not acute, that inflation rates are low and inflation expectations are still firmly anchored. second, they warn that rapid consolidation in these countries would set off a cyclical downward spiral – they would “ save themselves to death ”, as it were. bearing this in mind, i would therefore like to focus on three topics in a little more detail : first, the importance of sound public finances for price stability ; second, the preconditions for sound public finances in the monetary union ; and third, the cyclical effects of fiscal consolidation. to begin with, let us consider why monetary policy can only be successful in the long run if public finances are sound. bis central bankers ’ speeches 2. the importance of sound public finances for monetary policy high levels of government debt make it difficult to safeguard price stability in more ways than one. as i have already indicated, an excessive debt level can cause growth impetus to slacken over the long run as the increased public borrowing requirement pushes up interest rates, making investment more expensive and thus diminishing growth. if the central bank does not identify this slowdown in growth in good time, its monetary policy stance will be too expansionary and thus ultimately raise the spectre of inflation. but even if the central bank does correctly identify the deceleration of growth, it might come under mounting pressure to adopt an excessively expansionary monetary stance in order to stimulate the economy and thus maintain the usual rates of expansion. the longer the central bank tries to use monetary policy means to mask the structural slowdown in growth, the less credible it becomes in terms of its price stability objective. this can send inflation expectations higher and ultimately fuel inflation. however, a structural slowdown in the growth outlook is not the only problem that excessive public debt holds in store for monetary policy. if a government has already racked up high levels of debt in economically good times, fiscal policy can no longer fulfil its role as a buffer when a crisis occurs. under normal circumstances, fiscal policy measures can stabilise aggregate demand during a cyclical downturn, for example via unemployment benefits or an automatically falling tax burden. this path is not available if such fiscal policy measures call the sovereign ’ s solvency into question. this applies not only to the traditional countercyclical fiscal stimulus measures i have just mentioned, but also to cases where the crisis has

andreas dombret : deceptive tranquillity and the threat of reform fatigue – the need for international cooperation opening remarks by dr andreas dombret, member of the executive board of the deutsche bundesbank, at a joint seminar of the central bank of the republic of turkey and the deutsche bundesbank, istanbul, 4 july 2014. * 1. * * introduction ladies and gentlemen the italian writer edmondo de amicis described istanbul as “ a universal beauty where poet and archaeologist, diplomat and merchant, princess and sailor, northerner and westerner screams with the same admiration ”. as far as i am concerned, he could have added central bankers to the list of those who admire the city of istanbul. which is to say i am happy to be here today at the joint seminar of the central bank of the republic of turkey and the deutsche bundesbank. i would like to thank our turkish colleagues for their hospitality, and to express my gratitude to all who helped make this seminar possible. turkey and germany are closely connected. at the beginning of the 1960s, the first turkish immigrants came to germany, and today, more than 50 years later, around 3 million people of turkish origin live within germany ’ s borders. our two countries are therefore connected not only at the political but also at a very personal level. last year, the central banks of turkey and germany added a new level of partnership. since november, a representative of the bundesbank has been based in istanbul to build networks, to share information and ideas, to explain the bundesbank ’ s positions and to facilitate cooperation. this joint seminar on financial stability is the tangible outcome of these efforts. 2. international cooperation in financial stability today ’ s and tomorrow ’ s seminar covers an issue in which international cooperation is certainly necessary : financial stability is a public good, and a global one at that. the past few years have taught us that financial crises do not stop at national borders. we live in an integrated world, and no country is able to insulate itself any more. that said, we need a global approach to secure financial stability, and the fundamentals of such an approach are personal contacts, open exchange and mutual understanding. for me, one of the main objectives of this seminar is to strengthen these fundamentals. central banks in particular have a natural interest in financial stability, and in many instances they are involved in safeguarding it. nevertheless, it is important to make a distinction between the different roles that central banks have