, a great deal. it is widely understood that governments can finance expenditures through taxation, debt – that is, future taxes – or printing money. in this sense, monetary policy and fiscal policy are intertwined through the government budget constraint. for good reasons, though, societies have converged toward arrangements that provide a fair degree of separation between the functions of central banks and those of their fiscal authorities. for example, in a world of fiat currency, central banks are generally assigned the responsibility for establishing and maintaining the value or purchasing power of the nation ’ s unit of account. yet, that task can be undermined, or completely subverted, if fiscal authorities set their budgets in a manner that ultimately requires the central bank to finance bis central bankers ’ speeches government expenditures with significant amounts of seigniorage in lieu of current or future tax revenue. 1 the ability of a central bank to maintain price stability can also be undermined when the central bank itself ventures into the realm of fiscal policy. history teaches us that unless governments are constrained institutionally or constitutionally, they often resort to the printing press to try to escape what appear to be intractable budget problems. and the budget problems faced by many governments today are, indeed, challenging. but history also teaches us that resorting to the printing press in lieu of making tough fiscal choices is a recipe for creating substantial inflation and, in some cases, hyperinflation. awareness of these long - term consequences of excessive money creation is the reason that over the past 60 years, country after country has moved to establish and maintain independent central banks – that is, central banks that have the ability to make monetary policy decisions free from short - run political interference. without the protections afforded by independence, the temptation of governments to exploit the printing press to avoid fiscal discipline is often just too great. thus, it is simply good governance and wise economic policy to maintain a healthy separation between those responsible for tax and spending policy and those responsible for money creation. it is equally important for central banks that have been granted independence to be constrained from using their own authority to engage in activities that more appropriately belong to the fiscal authorities or the private sector. in other words, with independence comes responsibility and accountability. central banks that breach their boundaries risk their legitimacy, credibility, and ultimately, their independence. given the benefits of central bank independence, that could prove costly to society in the long run. there are a number of approaches to placing limits on independent central banks so that the boundaries between

rather than an intermediate step. however, with the euro, we now form a “ schicksalsgemeinschaft ”, a community with a shared future. our economies are linked, and so our policy decisions have become a matter of concern for all. we have a legitimate interest in developments and political actions in other euro area countries, since we are affected by them - for better or for worse. if i may use a “ domestic ” metaphor, the marriage in which the euro has joined our countries is about more than just living under the same roof, it is about sharing a common vision and about managing life together. concluding remarks in the context of the current attempts to help the european union work smoothly and on a sustainable basis following its future enlargement, i would like to conclude by mentioning the draft treaty establishing a constitution for europe. the process of european integration has delivered half a century of stability, peace and prosperity. it has helped to raise living standards, built a single european market, launched the single european currency, the euro, and strengthened europe ’ s voice in the world. as a central banker, i would argue that the draft constitution has incorporated the substance of the emu chapters of the maastricht treaty, while also introducing clarifications, additions and updates to the existing texts where necessary and appropriate. clearly it is now up to the governments of the member states to move forward in the intergovernmental conference. my wish for the draft constitution is that it will achieve the same success as the economic and monetary policy part of the maastricht treaty. thank you for your attention.