has a set of rules, an institutional framework. this framework needs to be reformed in order to make monetary union more crisis - resistant. it is not sufficiently stable as it stands. while it is true that fiscal stabilisation programmes and effective assistance on the part of the eurosystem have succeeded in preventing the crisis from flaring up, it was this very policy which brought about a precarious situation : liability for the crisis countries ’ debt has essentially been communitised while fiscal policy remains a matter for national policymakers. that doesn ’ t augur well for the future. liability is a core element of our economic system. that ’ s something every entrepreneur knows – after all, doing business means picking up the tab if things go wrong. that ’ s why i think the euro area has reached a kind of crossroads : either we proceed towards a fiscal union in the sense of establishing joint liability with centralised rights to intervene in fiscal matters at the european level, or we turn back to the original framework as specified in the maastricht treaty and reinforce the principle of individual national responsibility. both paths can put liability and control back on an even keel and bring risks and opportunities into alignment. which path is the right one to take is a matter for policymakers to decide. i believe that governments and the public at large are currently less than willing to take the step towards a bona fide fiscal union, seeing as this would mean ceding a great deal of national sovereignty in fiscal policy matters. bis central bankers ’ speeches those calling for greater mutual liability are often the very ones who reject recommendations from brussels as meddling in national matters. italian prime minister matteo renzi, for instance, likens the eu to an “ old boring aunt telling us what to do ”. it was a long - held belief, above all in germany, that monetary union would, out of necessity as it were, culminate in political union. addressing the bundestag in november 1991, helmut kohl remarked that “ the idea of sustaining economic and monetary union over time without political union is a fallacy ”. the bundesbank likewise stressed at the time that political union was crucial if monetary union was to prove durable. viewed with hindsight, i would qualify that statement somewhat to say that monetary union can also function without political union provided that the principle of individual national responsibility is adhered to. this view is supported by udo di fabio, a former judge at the federal constitutional court, who

with ease. today, the european central bank – more than 300 years younger than the bank of england – has already successfully established a reputation for guaranteeing price stability in the euro zone. the three - year - period from 1998 to 2000 saw an average rate of inflation of 1. 1 %. this early euro - period is remarkable : it was one of the three most outstanding periods of price stability performance in germany since the 1950s. since last summer high energy costs, in part linked to the external value of the euro, and demand shifts due to the european food crisis have taken their toll. thus, from today ’ s point of view, it looks probable that in 2001 we will not be able to meet our target of holding inflation below the 2 % ceiling. however, on may 10, the governing council decided to lower official interest rates by 25 basis points. the interest rate for the main refinancing operation is now 4. 5 %. this decision was based on the twopillar strategy, i. e. monetary growth in the first pillar and the broader assessment of the outlook for price developments in the second pillar. in the period since last spring, monetary growth came ever closer to the reference value of 4. 5 %. furthermore, indications that monetary growth is somewhat overstated have been confirmed recently. non - euro area residents ’ purchases of negotiable paper included in m3 – that is money market fund units and other marketable paper – are sizeable as well as rising. however, the relevant concept of m3 is residents ’ holdings. once these distortions are accounted for, the first pillar indicates no further risks for price stability. the second pillar also points in the direction of receding upward risks for price stability. external developments are dampening the prospects for euro - area growth. wages are rising, but only moderately. on balance, both pillars of the ecb ’ s monetary strategy paint a rather favourable picture for the medium - term outlook for price stability. thus, we are confident that the hicp will drop below the 2 % threshold during the course of the next year. in the run - up to european monetary union, prices in those european countries with a history of higher inflation rates had been remarkably stable. all countries met the inflation criterion with ease. recently, the sustainability of this monetary convergence process has been questioned. the spread between the lowest and the highest inflation rates in the euro area is now wider than it was at the outset of monetary union. in january 1998