financial linkages across countries, the decoupling in terms of growth between advanced and emerging economies that was apparent after the first quarter of 2009, disappeared. needless to say, the situation required immediate policy response by authorities. in the united states, given that entrenched political positions made it impossible to make meaningful progress in the fiscal front, the federal reserve continued to carry the brunt of the adjustment, as it expanded its accommodative monetary policy stance, using extensively quantitative easing combined with prospective interest rate guidance. all this with the objective of taking the pressure off the bond market, flattening the yield curve and by these means stimulate aggregate demand and employment. the situation in europe, at least from my point of view, was, and still is, by far more challenging. the main reason was that the drastic deterioration of the fiscal position and the health of the banking system in some peripheral countries in the eurozone elevated to hazardous levels what has been called fragmentation risk, which in plain english means the risk of a breakdown of the european currency union as we know it. this led to sudden stops in the financing of some sovereigns and their banking system, which in a way triggered massive capital outflows. all this in turn fed back into higher fragmentation risks, creating a very pervasive vicious cycle. the materialization of sudden stops in the eurozone caught many by surprise. this type of phenomenon was supposed to happen only in weak emerging markets, not in mature economies protected by a supposedly strong anchor in the form of a credible exchange regime, i. e. the european currency union. but the problem precisely was that the perception of a strong external anchor made it feasible for some countries to let their guard down, manifested in policy complacency in the good years when huge and persistent net capital inflows were the norm. this situation resulted in : a ) unprecedented external indebtedness in some countries, and b ) banking institutions with bloated balance sheets supported by very bis central bankers ’ speeches fragile funding. this combination of factors made the sudden stops in some european countries much more pronounced than the ones experienced in previous decades in latin america or during the asian crisis in the nineties. the financial sector and sovereign distress in europe demonstrates once more that an exchange rate regime per se cannot be a substitute for policy discipline. as a matter of fact, the problems faced by europe since mid - 2011 are not different from the ones resulting from a speculative attack against an

navigating without instruments in a storm. this makes it essential for governments to be flexible and agile in their policy bis central bankers ’ speeches response, developing at the same time an effective communication strategy to address markets and society in general. flexibility should not be confused by the population with a perception of lack of commitment with the adjustment process. once the course is set, strict implementation should follow. fourth, complacency should be avoided. at some point in time, there will be a positive response to the implementation of policy measures, and this will happen very likely in the midst of a very painful adjustment process in the economy. given that adjustment fatigue kicks in at a relatively early stage in the process, there will be numerous voices that will call for a declaration of victory and the abandonment of the reform process ahead of time. the danger of falling in this trap is that the country would be sawing the seed for the next crisis, entering into a recurrent crisis cycle that is very difficult to leave, as many latin - american countries can attest to. fifth, it is very important to implement various programs to mitigate, to the extent possible, the social consequences of adjustment. these programs should seek to maintain a basic support network, for instance in health and education for the unemployed, focusing specifically on the most vulnerable and poorly equipped population to withstand shocks and adjustments. sixth, an adjustment program without subsequent economic growth is ephemeral, especially if the country is not able to do a correction in the exchange rate regime. therefore, the adjustment program should be accompanied by structural reforms that generate quick advances in productivity and foster a more rapid recovery of competitiveness. certainly, these general principles are applicable to every country under a financial crisis. they stem from experience, which means that they work even though each case has its own singularities and the political and social environment is different in each country. i hope that this initial effort to try to identify best practices in establishing a crisis resolution strategy is taken up by the international financial community, so as to have a more complete toolbox to deal with difficult unexpected circumstances. before i move to my concluding remarks, let me just make a quick point on our collective efforts to prevent crises. as i already mentioned, this is a very important workstream in the reform process of the international financial architecture. sometimes i have the sense that we are not inquisitive enough in actively asking ourselves from where the next crisis will come from. i say this because more often than