gertrude tumpel - gugerell : the way forward with monetary, fiscal and macroprudential policies speech by ms gertrude tumpel - gugerell, member of the executive board of the european central bank, at the conference “ europe after the crisis : resuming the long - term perspective ”, organised by the confederation of swedish enterprise and the centre for global studies, stockholm, 11 december 2009. * * * introduction thank you for your invitation to speak here today. in my short intervention, i will focus on the question how post - crisis monetary, fiscal and macroprudential policies in europe should look like. rapid and determined policy action have avoided that things turned worse at the peak of the crisis, but now that the worst seems to be behind us, it is time to look further ahead. notably, we need to reverse what should only be temporary, and implement what needs to be changed structurally, so as to reduce chances of such a crisis from occurring again. monetary policy let me start with monetary policy. after the crisis had intensified significantly, a bit more than one year ago, the ecb responded swiftly and vigorously. in particular, it lowered its main interest rates substantially by 325 basis points between october 2008 and may 2009. the current rate of 1 % is the lowest since monetary union started in 1999. in addition, we have taken a number of non - standard liquidity and credit support measures to mitigate the adverse impact of dysfunctional money markets on the liquidity situation of solvent banks in the euro area and thereby avoid the emergence of a systemic liquidity crisis. to this end, for instance, we provided banks with unlimited liquidity against an expanded list of collateral, while prolonging the maturity of our refinancing operations up to 1 year. from the very beginning, we have made clear that our enhanced credit support measures would be temporary in nature and remain in place only as long as needed. now, taking into account the ongoing improvements in financial market conditions, we arrived at a situation where in fact not all our liquidity measures are needed to the same extent as in the past. therefore, we announced last week some initial steps to gradually phasing out some of these measures. at the same time, we continue to provide liquidity support to the euro area banks for an extended period of time at favourable conditions, as – despite the start of the phasing out – the impact of previously taken measures reach well into the next year. while

that we can narrow the policy gap between systemic risk assessments and their translation into risk mitigating policy actions, this will ultimately enhance the financial system ’ s resilience to adverse disturbances. in this sense the political support for these reforms is absolutely essential. conclusion let me conclude. monetary and fiscal policies, through vigorous and swift action at the peak of the financial crisis, have avoided a free fall in economic activity and a further drying up of financial markets. as we gradually seem to be leaving the extraordinary circumstances behind us, monetary and fiscal policies must return to their normal mode of operation. will that normal mode look different from the one before the crisis? as for monetary policy, you can be assured that the ecb will monitor all developments carefully and continue to gradually phase - out at the appropriate time its enhanced credit support measures, without hampering the functioning of financial markets. let me also assure you that maintaining price stability remains our primary objective. at the same time, let me also emphasize that central banks must become more wary of financial market risks and their macroeconomic implications to the overall benefit of achieving the monetary policy objective. as regards fiscal policies, consolidation efforts need to be implemented timely and credibly, and as in the past with a particular focus on the expenditure side. as to macroprudential policies, the recent crisis has strikingly illustrated the interconnectedness that characterizes the financial system. this has reaffirmed the need to strengthen macroprudential policies, i. e. the focus on the systemic nature of risks and their mitigation to reduce the chances on such a crisis from happening again need. finally, let us not forget the importance of self set standards and rules by the financial markets themselves. importantly, the financial industry must be aware of their own responsibility and need to draw the right lessons from the crisis for future practises. thank you for your attention.