the result of an autonomous decision by the central bank. they have to be seen as consistent with its overall policy framework, rather than as the result of pressures from fiscal authorities. the reason is simple. if a central bank comes under pressure in times of crisis, and succumbs to that pressure, it is very unlikely to exit from such extraordinary measures in a timely manner. this may unanchor inflation expectations and thus undermine the effectiveness of the measures implemented during the crisis. secondly, regarding the objective of price stability and the anchoring of inflation expectations, the crisis taught us that well - anchored inflation expectations can act as an automatic stabiliser when uncertainty becomes destabilising. this is always true, in good times as well. in fact, well - anchored inflation expectations in the euro area were instrumental in avoiding large interest rate hikes before the crisis, when commodity prices rose sharply. at the height of the crisis, they became a policy instrument in their own right. thanks to wellanchored inflation expectations we could avoid deflationary spirals and real interest rates could be reduced in tandem with nominal rates. it is noteworthy that if inflation expectations are well anchored, and are not affected by transient shocks to actual inflation, there is no need to manipulate monetary policy frameworks : there is no need to increase the inflation target as a means of resisting deflationary risks in times of macroeconomic distress. 4 opportunistic manipulations of the monetary policy framework of course damage the foundations on which that framework rests. so, being able to rely on the stabilising effect of inflation expectations is clearly a preferable option. let me now turn to the elements of the consensus that are, from the perspective of the ecb, somewhat more controversial. firstly, the crisis has demonstrated that a monetary policy aimed at fine - tuning short - term objectives carries serious risks. before the crisis, there was a widely - held conviction that monetary policy could focus more on short term demand management because inflation was firmly under control. proponents of this view found support in the phenomenon of the “ great moderation ” observed in the twenty years before the crisis, a time of widespread macroeconomic stability and low inflation in most industrialised countries. nonetheless, there were clear signs – and also warnings – that this short - term orientation could have negative side effects in the medium to long term. 5 as you know, these side effects manifested themselves in a spectacular build - up of monetary and financial imbalances.

not yet progressed sufficiently. fiscal policy should be more grounded in a rules - based framework with clear medium term objectives, similar to monetary policy. the adoption of fiscal rules by some countries is clearly an improvement. in the euro area, a number of steps have been undertaken to strengthen economic governance so that concerns about competitiveness and fiscal policy can be addressed pre - emptively. but for the ecb these steps do not go far enough. for rules and sanctions to be fully credible they should be stricter and automatic – not subject to the political process – so that countries have the right incentives to address their problems. see cecchetti s., mohanty m. and f. zampolli ( 2011 ), “ the real effects of debt, ” paper presented at the 2011 annual jackson hole economic policy symposium, 25 – 27 august ; rother, p., l. schuknecht and j. stark, ( 2010 ) the benefits of fiscal consolidation in uncharted waters, ecb occasional papers, no 121. bis central bankers ’ speeches