they managed to keep inflation at low levels, but the monetary targets were missed in several years. the success of the bundesbank ’ s strategy lay to a greater extent in the credibility of its clearly anti - inflationary stance – also reflected in announcing annual inflation targets – than in strict compliance with monetary targeting rules. although central bankers tend to think of themselves as upholders of timeless values – as mervyn king put it – a new fashion started to attract followers. the era of inflation targeting was dawning. however, for romania it was still too early, as it was rather unclear whether the new strategy was appropriate for developed economies only or for emerging economies as well. anyway, at that time, i. e. mid to late nineties, romania fulfilled none of the inflation targeting prerequisites : the annual inflation rate was still far from single - digit levels, fiscal dominance was strong, central bank credibility was not yet consolidated, while the possibility to forecast inflation two - years ahead was wishful thinking. in the end, as financial innovation and the unstable money velocity weakened the money - inflation relation, monetary aggregates did abandon us. in the case of romania – and probably in the case of other transition economies, as well – another reason for the monetary aggregates unsuitability as intermediate target may be attributable to the lack of financial discipline which led to the build - up of arrears in the inefficient soes ( largely, towards the state and among themselves ). as the arrears acted as money substitute, the role of monetary aggregates in guiding monetary policy became increasingly irrelevant – restricting money supply often resulted into an accumulation of arrears. although the arrears ceased to be an issue during the boom years, they emerged again as a problem during the crisis, the build - up being significant in socially - sensitive sectors such as public utilities and healthcare. coming back to mid - 2000s, after several years of preparation, the nbr joined the club of inflation targeters in august 2005. nevertheless, it is worth noting that, when romania gave up monetary targeting, estonia was its only peer among central and east european countries in terms of longevity of the bis central bankers ’ speeches monetary policy regime, with its currency board adopted in 1992. shifts from one end to another of the spectrum of monetary and exchange rate arrangements were common in the region. specifically, the czech republic, poland and hungary had various forms of exchange rate pegs during the

##lsters the banking sector's resilience. this makes a loss of confidence in national banking systems less likely. and less danger of a fragmented financial system stabilises lending, particularly in turbulent times. a common european deposit guarantee scheme could, in theory, even heighten this confidence. however, as with any insurance policy, one would have to make sure in this case, too, that the insurance does not cover losses which have already occurred, like bad loans already on banks ’ books, and that the insurance does not encourage careless behaviour in the future. and, in my view, the preferential treatment of sovereign debt on banks ’ balance sheets has to be done away with in europe to avoid a mutualisation of sovereign risks through the back door. credit to general governments is not risk - free, as the sovereign debt crisis reminded us in no uncertain terms. one precondition for a european deposit insurance scheme, then, is that the size of government bond portfolios that banks hold on their books is limited. credit to sovereigns should not be treated any differently from credit to enterprises or individuals. 4 / 5 bis central bankers'speeches 6. conclusion ladies and gentlemen on that note, i would like to conclude by recalling something else president kennedy said : " there are risks and costs to action. but they are far less than the long - range risks of comfortable inaction. " to me, that aptly describes the situation germany and the euro area find themselves in. i now look forward to exploring promising avenues of action with you, and wish us all an exciting and rewarding conference! 1 raphael auer & claudio borio & andrew filardo, 2017. “ the globalisation of inflation : the growing importance of global value chains ", bis working papers 602, bank for international settlements. 2 see deutsche bundesbank, the international spillover effects of an expansion of public investment in germany, monthly report, august 2016, pp. 13 - 17, and studies with similar results cited there. 3 allard, c, p k brooks, j c bluedorn, f bornhorst, k christopherson, f ohnsorge, t poghosyan and an imf staff team ( 2013 ), “ towards a fiscal union for the euro area ", imf staff discussion note, 13 / 09. 4 adalet mcgowan m and d andrews ( 2016 ), “ insolvency regimes and productivity growth : a framework for analysis "