##oachment on the area of fiscal responsibilities are extremely important. conflicts with the price stability objective could emerge from monetary operations that support unsustainable government finances or insolvent financial institutions. there is no doubt that monetary policy has had beneficial effects on government finances ; monetary policy has unavoidable implications for public budgets. the same kind of indirect support occurred during the easing cycle in the early 2000s, when our main refinancing rate was reduced to 2 % – a very low level at the time – and was maintained at that level for more than two years. the fiscal ramifications of monetary policy that we see today ( and in the early 2000s ), however, differ fundamentally from the deliberately coordinated strategy of monetary financing that we observed in some countries in the 1970s. today the use of any central bank instrument has to be justified solely on the basis of the central bank ’ s narrow price stability objective, and not on any fiscal consequences thereof. borrowing from the theory of monetary regimes, it is the dominance of the central bank mandate over the objective governing fiscal conduct that differentiates the setting of monetary policy today from anything we saw prior to monetary union. the ecb continues to have the necessary institutional independence, the financial resources and operational capacity to take all appropriate measures, if and when needed, to counter upside or downside risks to price stability in a truly symmetric fashion. it could be argued that there are multiple channels through which the central bank could take on tasks and obligations that pertain to the fiscal authority, and some of these channels are both more subtle and less apparent than outright financing of public deficits. extending liquidity support to insolvent banks is a case in point. but, even in this admittedly fuzzier terrain that separates liquidity provision from solvency support, the ecb operates in a sound framework that has passed multiple resilience tests in recent years. in the case of greece, for instance, the choices of the governing council were another example of strict adherence to this framework. in keeping with article 123 of the treaty, which prohibits the ecb from monetary financing, the governing council imposed strict limits on the use of government securities as collateral for loans that the greek banks received from the ecb. we nevertheless continued to supply the necessary liquidity so as to ensure the functioning of the greek banking system and the continuation of lending to businesses and households. this was in line with the principle by which the eurosystem may lend to banks which are solvent

peter praet : have unconventional policies overstretched central bank independence? challenges for accountability and transparency in the wake of the crisis keynote address by mr peter praet, member of the executive board of the european central bank, at the " symposium on building the financial system of the 21st century : an agenda for europe and the united states ", frankfurt am main, 29 march 2017. * * * i would like to thank claus brand for his contribution to this speech. evolution in consensus on the role of central banks and central bank independence in the course of monetary history, consensus on the role of monetary policy and on the appropriate degree of independence of the central bank has fluctuated considerably. during major crises, the pendulum has tended to swing from one extreme to the other. in the heyday of the gold standard, i. e. the decades preceding world war i, there was a commonly accepted understanding of how to preserve monetary and financial stability. the gold standard provided what we call a “ nominal anchor ”. it effectively ensured central bank independence from other public policies by subjecting monetary policy to an automatic rule. 1 at the same time, there was a clear understanding of the role of central banks as a lender of last resort. under that regime, central banks enjoyed sufficient discretion to take effective action in the event of banking panics. adherence to the oft - quoted bagehot principle ( “ lend freely at a high rate against good collateral ” to solvent, but illiquid institutions2 ) ensured that lender of last resort activities did not threaten monetary stability. the pendulum began to swing away from this pre - war consensus when world war i prompted many countries to subordinate monetary policy to financing war and to suspend the gold standard. countries returning to the gold standard after world war i, however, turned to overly rigid management of monetary affairs. lacking the necessary discretion, following the wall street crash and the global recession in 1929, and the subsequent banking crisis, monetary policy prompted a precipitous collapse in money and prices. 3 this spawned the greatest loss in jobs and output on record in what came to be remembered as the great depression. in a fateful irony of monetary history, the role of monetary policy in precipitating these calamitous events did not usher in monetary reform. on the contrary, notions hardened that monetary policy was powerless and that macroeconomic stability needed to be safeguarded through other policies. 4 this shift in emphasis culminated in fiscal dominance, which contributed