the materialization of systemic risk and financial instabilities can lead to deep recessions with great economic costs, carrying risks for medium term price stability as well. does this mean that monetary policy should be used to preserve financial stability? not primarily! we should not violate the tinbergen principle : a separate policy instrument for every policy objective. the first best policy for preserving financial stability and specifically to prevent systemic risks from materializing is macroprudential supervision. of course, we cannot judge yet, the success and the effectiveness of the newly established macroprudential supervisors – here in europe and across the atlantic in the us. but, i am convinced that if we are wary on financial innovations, potential activities shifting to unregulated markets segments or entities and we are mastering the analytical challenge of measuring systemic risk, this undertaking will be a very successful one. i have started my central banking career in the 70ies when the fight against inflation and macroeconomic instability was a big challenge. from this period i have kept my conviction that you have to lean against the wind. so, i believe, that we as monetary policy makers should not shy away from our responsibility to contribute to preserving financial stability. having said that, i believe that we at the ecb are well prepared for this task. first, with our medium term orientation on price stability, we have the framework to take into account in a systematic way more medium term developments and potential imbalances occurring at that horizon. bis central bankers ’ speeches second, our two - pillar monetary policy strategy foresees that we not only take into account economic but also money and credit developments when setting interest rates. such money and credit development can help to identify financial market imbalances and unsustainable credit and asset price developments and can serve as early warning indicator for financial fragilities. and third, we have a framework to implement monetary policy in a flexible way, allowing that we can react swiftly when fragilities occur. still, we should be modest as well. it is true that before the crisis, we have seen signs of imbalances – imbalances at the global level and imbalances in local markets in the euro area and we have warned that correction could take place in an abrupt manner. but it is also true that nobody – also not at the ecb – has seen such a severe and deep crisis coming. therefore, we also learned our lessons : that the financial sector is absolutely crucial, for macroeconomic outcomes

bankers ’ speeches the mro rate will become more relevant again in the future, signalling our monetary policy stance. this implies that the overnight rate will be close to the mro rate. we already see that interbank markets are performing better, as shown for instance by the decreasing dependency of banks on ecb refinancing operations. recourse to these operations has declined significantly from close to €900 billion in june 2010 to around €430 billion today. 5. monetary policy and heterogeneity in public debates, viability of the euro has again been questioned on the ground that the financial crisis has deepened the economic divide across member states. but the ecb ’ s bis central bankers ’ speeches monetary policy continues to be geared towards price stability in the euro area as a whole. the single monetary policy of the ecb cannot address different economic growth or inflation across regions of the euro area. such macroeconomic heterogeneity is a normal feature within a monetary union. heterogeneity can even be a desirable feature when it reflects the necessary adjustments to macroeconomic imbalances that have built up. macroeconomic diversity is an issue that national policy - makers should deal with, not the ecb. their primary contribution of course would be to avoid building up unsustainable macroeconomic imbalances. indeed, the bulk of the current imbalances in some euro area countries reflect that countries have insufficiently internalised the participation in a monetary union into domestic policies. to fully realise the benefits of emu requires national policies to adapt to emu. this applies to the areas of fiscal policy ( including taxation ), structural reforms, regulation and banking supervision. without this, imbalances will inevitably reoccur, challenging the proper functioning of emu and thus of monetary policy. it is essential to put in place a european framework that is incentive - compatible and credibly enforceable, to avoid the re - emergence of significant imbalances. national policies should be fully guided by the framework. does this then imply that monetary policy completely ignores developments in individual euro area countries of the euro area? no, but specific national developments play a role for monetary policy only to the extent that they have an impact on the medium - term outlook and risks for price stability in the euro area as a whole. maintaining price stability for the entire euro area is the central contribution the ecb ’ s monetary policy makes with a view to supporting sustainable economic growth, job