exactly on these factors. without a high degree of real convergence, monetary policy is bound to have different effects in different parts of the monetary union. the very idea of a single european monetary policy would thus become unrealistic. the ecb would come under political pressure to accommodate mutually incompatible wishes from different parts of the monetary union. the result could only be a less than optimal monetary policy and rising inflation and interest rates. for emu to be successful the member states of the eu should therefore make determined efforts to further real convergence. the convergence criteria as laid down in the maastricht treaty require member states of the eu to achieve certain goals by spring 1998. convergence, properly understood, can however never be something that can be pinpointed to a certain point in time, but must be an ongoing process. it does not make sense to require countries to get their fiscal situation under control by a certain date, just to let them go unpunished on a public spending spree shortly afterwards. prudent fiscal policies should not only be a requirement for becoming, but also for remaining part of the emu. what is necessary is not only a commitment to achieve fiscal stability at a certain point in time, but a commitment to conduct, from there on, a sustainable fiscal policy. the member states of the eu answered this challenge by agreeing on the so - called stability and growth pact. the main goal of this pact is to ensure that countries belonging to the emu continue to follow prudent fiscal policies after the start of the single monetary policy. countries that deviate from the target will - - in certain circumstances - - be subject to fines which depend on the degree and the duration of the violation of the target. these sanctions will certainly contribute to a more prudent fiscal policy in the participating countries. they will also help in signalling to the public and the markets the determination of the authorities to continue with fiscal consolidation. however, it is not clear whether the stability and growth pact will be enough to ensure fiscal stability. stability is not something that can be achieved simply by institutionalized solutions. it can only be the result of the shared conviction of those that are involved in the decision - making process and the societies behind them. only time will tell whether this shared conviction exists in the eu. nonetheless, the stability and growth pact is an important ingredient in the quest for a sustainable fiscal policy in the eu. the eu is - - as i have tried to show - - well poised to

in recent years, we have repeatedly seen how market liquidity can fall sharply in times of stress. 3 there have, in particular, been a few days on which – for no apparent reason – there was a sudden surge in volatility. this was the case in october 2014 in the us, when ten - year yields dropped by 37 basis points in a single day. japanese government bonds experienced something similar a few weeks ago, falling by 26 basis points in one day. the two charts in slide 9 use histograms to illustrate how unusual the price movements were on these days. they show the observed intraday frequency of certain fluctuations in yield on us or japanese government bonds for the period since 2001. fluctuations of the magnitude described here are extremely rare events. such episodes prompted fears that market distortions of this kind could recur at any time. what do these changes in market liquidity mean for the snb? at the operational portfolio management level, we are affected by the deterioration in corporate bond liquidity. the greatest difficulty stems from the fact that trading is increasingly focused on a comparatively small section of the corporate bonds outstanding. this has meant that large purchases or sales are more difficult, and more expensive, than before the financial crisis. this, in turn, has necessitated some adjustments in the way corporate bond portfolios are managed. the snb is now more active in the primary sales market than before, and has also expanded its counterparty base. in addition, depending on the liquidity situation, transactions are having to be split into smaller tranches. overall, therefore, the management of corporate bond portfolios has become more complex and more demanding. by contrast, the markets for highly rated government bonds continue to be very liquid. shortterm price fluctuations do not place any limitations on the management of the government bonds in our portfolio. as i have already mentioned, we have a very long investment horizon. we hold our investments for at least one full economic cycle and we are not obliged to sell, even in periods of stress. in contrast to, say, investment funds, we are not faced with the prospect of investors demanding the return of their shares when market turbulence sets in, and forcing a quick asset sale. on the contrary, when volatility increases, our investment activity can exert a certain stabilising influence on prices in these markets. this is due to rebalancing : when large price declines in individual asset classes cause their share within our portfolio to fall substantially below