for price stability were so high that we needed to act. have jens weidmann and sabine lautenschlager been all too relentless in their criticism? liikanen : no, it ’ s been professional. nobody can claim for not having been heard in the governing council. history will tell whether our timing was right. i hope the economy in the euro area will turn for the better. the germans admire the bundesbank. the blueprint in the creation of the ecb was meant to be the bundesbank – now there seems to be not much left of it. liikanen : i admire the bundesbank too. we all learned the value of monetary policy independence by studying the history of the bundesbank. that is what the ecb fights for. the spirit is there. when inflation rates were too high, i have been one of the first to support higher interest rates. but if interest rates are close to zero, and we have protracted low inflation and deflationary risks, that requires early action. you have to act while you can. bis central bankers ’ speeches the bundesbank thinks the ecb is going too far. liikanen : there is a new question for central bankers : if our inflation is too low should you react with the same vigor as when it is too high? should you? liikanen : i am a hawk in both directions, fighting inflation and preventing deflation. there are people who say zero inflation is fine. i think zero inflation makes the economy vulnerable without any buffers. the ecb objective of below but close to 2 percent in the medium term is safer. we haven ’ t had this kind of a problem before, in the postwar period. rather, inflation was the problem, and the bundesbank has a great record there. now we talk about the prospect of too low inflation for too long. we have to go far back in history to the 1930 ’ s to understand the dangers of deflation. you would not believe how often the history books are being quoted among central bankers in various discussions. but buying government bonds always has the odor of financing government deficits? don ’ t you agree? liikanen : no, not when we are doing it the way we decided to do it. we only buy bonds on the secondary market, we buy according to the capital keys of the eurosystem members, we buy maximum 25 percent of each issuance and maximum 33 percent of each issue

an increase in credit risks and non - performing loans. not least because many customers of banks haven ’ t even fully recovered from the pandemic. in times like these, we need a strong financial system to smooth the transmission of monetary policy and to prevent credit crunches. we should likewise avoid negative feedback loop effects between the real economy and the financial system. fortunately, the global and european regulatory, supervisory and institutional reforms undertaken after the financial crisis have made the financial system much more resilient than it used to be. the years of crises have highlighted the need to constantly evaluate the role and scope of monetary policy and its relation to macroprudential policy. in the ecb strategy review, we addressed the role of fiscal policy, macroprudential policy, financial stability and monetary and fiscal policy interactions. macroprudential policy has essentially become the second key pillar of central banking today, alongside monetary policy. when financial stability risks grow, macroprudential and microprudential policies are the first line of defence. most often, macroprudential policies and monetary policy are complementary. for instance, macroprudential policies that avoid a build - up of imbalances reduce the likelihood of future financial crises with negative effects on price stability. monetary policy may also affect financial stability risks. on the one hand, accommodative monetary policy can reduce credit risk by boosting economic activity and inflation dynamics. on the other hand, accommodative monetary policy may encourage the build - up of leverage or raise the volatility of asset prices. hence, monetary policy actions should always be proportional. similarly, monetary policy tightening can either decrease or increase risks concerning financial stability. since financial crises can threaten price stability, there is a clear case for the ecb to take financial stability considerations into account in its monetary policy deliberations. the ecb already takes into account the existing limitations of macroprudential policy in different phases of the financial cycle, the interactions between macroprudential policy and monetary policy, and possible side effects of monetary policy on financial stability. at the same time, it is important to avoid the misperception that monetary policy would be responsible for guaranteeing financial stability. the eurosystem follows a flexible approach in taking into account financial stability considerations. any monetary policy response to financial stability concerns will depend on the prevailing circumstances and will be guided by the implications for medium - term price stability. to this end, efforts to overhaul the ec