the euro, which was 2. 0 %. in the 1980s, it was 7. 4 % and in the 1970s 8. 8 %. the credibility of the euro, as measured by its ability to preserve purchasing power, is better than its legacy currencies have been over the last 50 years. the “ economic ” pillar : sound and sustainable fiscal policy the “ economic ” pillar of economic and monetary union rests on two ideas. first, fiscal policies must align with the requirements laid out in the stability and growth pact. second macroeconomic policies must be aligned with the general rules governing the participation in a monetary union that is based on price stability. i want to be candid with you today. the roots of the sovereign debt tensions we face today lie in the neglect of the rules for fiscal discipline that the founding fathers of economic and monetary union laid out in the maastricht treaty. we know that for several years, fiscal policies in many european countries have breached both the letter and the spirit of the stability and growth pact. the pact calls for budgets that are close to balance or in surplus over the cycle, deficits below 3 % of gdp and a public debt level of below 60 % of gdp. when a few years ago it became clear that in some countries fiscal policies would not be able to meet the rules of the stability and growth pact, it was not the policies that were changed but the pact. this was clearly a mistake. in 2004 and 2005, several governments, including the government of the larger member states, were actively trying to dismantle the stability and growth pact. it was a very fierce battle at the time, and the ecb publicly voiced its grave concerns. the second area of policy slippage concerns macroeconomic policies. in a monetary union, national developments in prices and costs have to take account of the fact that the union is a union of monetary stability. therefore, national price and costs developments significantly higher than the union average entail significant losses over time in competitiveness. competitiveness losses cannot be sustained forever, and sooner or later adjustments in unsustainable economic policies have to be made. fiscal and structural policies need to keep domestic demand in line with rates of sustainable growth and price stability. otherwise, booms and busts may prevail. both fiscal and macroeconomic policies are monitored by the peers, supported mainly by the european commission. the eurogroup and ecofin meetings of finance ministers are the fora for such peer monitoring. of course

of enhanced credit support helped restoring a more normal transmission of our monetary policy stance and ensuring that banks could maintain their crucial role in financing the real economy. the ecb also engaged in a covered bond purchase programme worth €60 billion throughout the euro area. the covered bond market is important in our economy and it was vital to re - start and support its functioning. in may 2010 increasing market concerns about the sustainability of public finances led to severe tensions in certain market segments, which were hampering the transmission mechanism of monetary policy and thereby the effective conduct of our efforts to maintain price stability. once more the ecb decided on appropriate measures. private financial intermediation was again threatened. with the rapid increase in secured interbank lending in the euro area in recent years, the impact on money markets of developments in government bond markets has grown substantially. government bonds have traditionally been an important element in the monetary policy transmission process because they serve as a benchmark for the pricing of other financial contracts and fixedincome securities. they have also emerged as a prime source of collateral in interbank lending. as a result abrupt changes in the value or availability of these securities can imply a sharp deterioration in banks ’ funding conditions – with adverse effects on both the supply of bank loans to the real economy and their prices. all our non - standard measures help to restore a more normal monetary policy transmission mechanism, which is necessary to fulfil our primary mandate of maintaining price stability in the medium term. in recent weeks, the tensions associated with the irish fiscal problems and the reorganisation of its banking sector have led to renewed bouts of high volatility in financial markets. more than ever it is important that governments step up consolidation in way that is credible and lays the foundation for sustainable long - term growth. there is a clear need to strengthen public confidence in the capacity of governments to return to sustainable public finances and thus support sustainable growth over the medium term. to this end, it is essential that countries pursue credible multi - year consolidation plans and fully implement the planned consolidation measures. positive fiscal developments that may emerge, reflecting factors such as a more favourable than expected economic environment, should be exploited to make faster progress with fiscal consolidation. europe ’ s economy : the current situation and the challenges ahead let me come to the third and final part of my remarks : what are the lessons we have learned from these events? first, our monetary policy strategy has proved to be effective. the quantitative definition of price stability and the medium - term orientation