is that, at present, unsustainable fiscal policies represent a threat to macroeconomic stability in nearly all advanced economies. if, on top of the financial uncertainties and concerns about public debt, the general public were to lose trust in the purchasing power of money, the consequences could be grave. also, higher inflation increases distortions from taxes. it increases inflation variability and, hence, uncertainty for investors. this implies higher long - term real interest rates, as investors would want compensation for the increased uncertainty. thus, a permanent increase in inflation curtails, rather than stimulates, long - term growth. empirical evidence confirms this negative relationship. using monetary policy to manage macroeconomic risk would avoid policy restrictions when benign shocks reduce inflation, as was the case when china and other low - cost economies started to increase their market shares some years ago, thus fostering asset price booms, excessive risk - taking and financial imbalances. when the asset price boom finally turns into a bust, such a policy would lead central banks to overreact to the negative shocks. so, financial stability is undermined in two ways : first, by a pro - cyclical monetary response to benign disinflation in good times ; second, by moral hazard in financial markets, stemming from the expectation that the central bank will protect the markets from “ tail events ” in bad times, thus encouraging too much risk - taking. this would certainly also set wrong incentives for fiscal policy - makers. fiscal policy this brings me to fiscal policy issues. the crisis began as a financial crisis and evolved into an economic crisis. there is now a clear risk that we will enter a third wave, a sovereign debt crisis in most advanced economies. many euro area countries are faced with large budget deficits and sharply rising public debt levels. while it was right to also take extraordinary fiscal policy measures to avoid a 1930s - style depression, a timely exit from the fiscal stimuli is now crucial in the context of ongoing economic recovery. any undue delay will have serious negative side - effects on confidence and economic welfare. let me remind you that unsustainable fiscal policies complicate the task of monetary policy, as they might lead to higher inflation expectations and higher uncertainty about the inflation outlook in the medium term. as a result, upward pressure on long - term interest rates might lead to a crowding out of private investment, which would, in turn, be detrimental to potential growth and contribute to adverse spill - over effects. high

remarks let me conclude. the global economy shows signs of an ongoing improvement. in the euro area, we are also on the road to recovery, albeit at a moderate pace. uncertainties remain high. as regards our monetary policy stance, we still view the current level of the ecb ’ s key interest rates as appropriate, given continued low inflationary pressures and our current assessment of the risks to price stability over the medium term. at the same time, improvements in financial markets since spring 2009 have justified a gradual phasing - out of non - standard measures. these decisions help to avoid distortions associated with the maintenance of our non - standard measures for longer than they are needed. this does not mean that the crisis is over. there is no room for complacency. we cannot rule out setbacks. new challenges may arise. greece is a case in point. thus, central banks need to provide an anchor of stability and confidence. any attempt to weaken or even lift this anchor would be a step in the wrong direction. thank you for your attention.