conducted at the european level and fiscal policies conducted at the national level. basically, there are two ways to realign this imbalance : either the european level gains certain control rights over national budgets – which would mean a deeper political bis central bankers ’ speeches integration. or we leave control of fiscal policy at the national level. but then the national level also has to assume liability for its policies – that would mean strengthening the maastricht framework. the first course would amount to what is known as a fiscal union. but that would depend on the countries of the euro area transferring national sovereignty to the european level – for example, by giving the european level the right to intervene in the case of unsound public finances. giving up sovereignty in this way would be a radical change and require wide - ranging legislative changes nationally and at the european level. more than anything, such changes would need the support not only of policymakers but also of the general public. and, on this point, we should be realistic. it is not possible to identify any willingness to do that at present – not in germany or in any other country of the euro area. this just leaves the second course of action : that is, an improved maastricht framework, a “ maastricht 2. 0 ”. among other things, that means strengthening the rules on borrowing – the stability and growth pact not only needs teeth, it also has to be able to bite. the rules have since been tightened – now they have to be applied and complied with. a “ maastricht 2. 0 ” would also mean taking the no bail - out principle more seriously again. but that calls for the possibility of sovereign default as the ultimate logical conclusion of individual responsibility. sovereign defaults have to be possible without destabilising the financial system of the euro area as a whole. 3. 3 the banking union as part of a better architecture and that is an important point, because the close link between government finances and the financial system was a major element of the crisis. basically, this is very much a vicious circle : if public finances run into difficulties, the banks are put under strain – if the banks hold government bonds on their balance sheets, for example. conversely, if banks run into difficulties, public finances are put under strain. take the example of ireland : in order to save its banking sector, ireland ran up a budget deficit amounting to 30 % of its economic output in 2010. there are various approaches

is necessary to cross - check against other inflation expectations ’ measures. this leads me to my third and final point. 3. other useful indicators of expected inflation inflation - indexed bonds are not the sole financial instrument to provide information on long - term expectations of inflation, as similar information can be extracted from inflation - linked swaps. the market for inflation - linked swaps has developed rapidly since 2002 in the euro area. companies with revenues linked to inflation may use this market to hedge against the perspective of low inflation while companies with liabilities linked to inflation may use it to hedge against the risks of high inflation. compared to inflation - indexed bonds, they provide a wider maturity spectrum for short and medium horizons. however, they are affected by the same biases, in particular the inflation risk and liquidity premia. this tool, however, usefully complements inflation - indexed bonds in the eurosystem ’ s information set7 and, so far, the information provided by this new financial instrument has been broadly see f. alonso, r. blanco and a. del rio : “ estimating inflation expectations using french government inflation - indexed bonds ”, banco de espana, documento de trabajo, n° 0111, 2001. see for instance the box entitled “ deriving euro area inflation expectations from inflation - linked swaps ”, ecb monthly bulletin, september 2003. in line with the information derived from indexed bonds, suggesting an average ten - year expected inflation rate of around 2 %. in addition to financial indicators, central banks, and the ecb in particular, also rely heavily on surveys to extract relevant information as regards long - term inflation expectations. i will limit myself to two examples : the first is the quarterly survey that has been carried out by the ecb since 1999, in which information is gathered from professional forecasters. in particular, it surveys inflation expectations over the medium term, at a 4 - year horizon, and delivers very useful information since each forecaster is asked about his own probability distribution of inflation over the forecast horizon. it might then be completed by other surveys looking at longer horizons, such as the consensus forecast for instance. according to these surveys, medium to long - term expectations have proven remarkably stable in the euro area, standing at a level around 1. 8 - 1. 9 %, in spite of short - term inflation dynamics being adversely affected by a series of sizeable supply shocks that have impacted the economy since 2000. another very useful kind of survey