global financial crisis has only accelerated. you are perhaps familiar with zhou enlai ’ s answer to de gaulle when he once asked him his opinion on the impact of the french revolution of 1789. i would like to thank arnaud mehl and isabel vansteenkiste for their valuable input in preparing this speech. see t. friedman ( 2005 ), the world is flat, a brief history of the twenty first century, farrar, straus and giroux. see for instance wto ( http : / / www. wto. org / english / res _ e / statis _ e / miwi _ e / miwi _ e. h ). bis central bankers ’ speeches “ too early to say ” was his reply. barely four years after the outbreak of the global economic and financial crisis, you will not be surprised if my answer today remains tentative, too. in my view, despite the important and significant progress already made, global economic governance still falls short of meeting the scale of today ’ s challenges. first and foremost this is because it is still largely driven by national considerations, but also because the evolutions that have occurred since the crisis still leave some key issues unresolved. these pertain to the leadership, coherence, efficiency and legitimacy of global economic governance. the discrepancy between the reality of today ’ s interdependences, the challenges they create, and the capacity of sovereign governments to agree on how to deal with them remains significant. in the remainder of my speech today, i would like to elaborate on these aspects by considering the challenges created by the onset of the crisis for the traditional foundations of global economic governance ; the salient evolutions in the latter and their limitations ; and how global economic governance could be strengthened going forward. 1. challenges created by the onset of the global economic and financial crisis for the traditional foundations of global economic governance the main reason why global economic governance today remains largely dependent on local considerations is that it is still founded on the principle of national sovereignty. the westphalian order of 1648, which sacralised the principle of sovereignty of nation - states, remains at the core of international economic relations today. 4 more than three centuries after the peace of westphalia, global economic governance still results for its largest part from decisions of sovereign states. any meaningful collective decision that helps address pressing global policy issues requires a consensus between sovereign nations, which still results from – often difficult – compromises. global economic relations hence remain mostly

routine toolkit of monetary policy implementation. given that tradition, it may be a natural step, under non - standard circumstances, to adapt this procedure by significantly expanding the volume of purchases and focusing on governments bonds with longer maturities. the eurosystem comes from a different tradition. for us, “ reverse transactions ” with banks – on the basis of repurchase agreements or collateralised loans – are the single most important – and in many respects exclusive – instrument in open market operations. given that tradition, it has been a natural step to extend the maturity of our refinancing operations and make adjustments to the collateral requirements. second, principles need to be stressed very firmly. for reasons known to all of us, the euro area has a clear separation of responsibilities. the ecb ’ s enhanced credit support fully respects this separation. third, preparations for exit are important. the governing council will ensure that the measures taken are quickly unwound, and the liquidity provided is absorbed, once the macroeconomic environment improves. long - term refinancing operations ( like operations with shorter maturity ) provide liquidity over a fixed time horizon and run off in a fully predictable way. by contrast, the unwinding of outright purchases typically requires an additional decision, namely whether to hold the securities to maturity – and if not, when to sell. the route taken by the eurosystem limits such decisions to our covered bonds purchases and for the rest relies on built - in mechanisms for the re - absorption of liquidity. by their nature, fiscal policies lack a similarly strong built - in mechanism when it comes to the unwinding of stimulus. discretionary policies need to be invoked to engineer an exit from the current degree of fiscal expansion. a return to sound, sustainable public finances, thus strengthening overall macroeconomic stability, must be ensured. euro area governments should prepare and communicate ambitious and realistic fiscal exit and consolidation strategies within the framework of the stability and growth pact. conclusions let me draw to a close. i have described to you the profound changes in the environment in which we have operated over the past two years. these changes have made it unavoidable that we take monetary policy measures that are unprecedented in nature, scope and magnitude. these measures fall into two categories : first, standard measures in the form of interest rate changes ; and second, a number of non - standard measures, which together constitute the ecb ’ s policy toolkit of enhanced credit support. these are special and primarily