measures ” such as the provision of funds from the rescue packages, offer pain relief. they help to buy time for the necessary adjustments, but all they actually do is fight the symptoms. they cannot eliminate what caused the crisis. it will take time until the causes of the crisis have been treated. this treatment should seek to remedy unsound developments at the national level while stabilising the framework of monetary union on a sustained basis. thus, the very first priority must be to regain confidence in the soundness of the public finances of individual countries, in the stability of their financial systems and in the competitiveness of their economic structures. this is where the adjustment programmes come in, providing assistance with conditions attached or promising “ solidarity in exchange for solidity ”. but at the same time, this assistance undermines the no bail - out clause to a greater or lesser extent, depending on the form it takes. but it ’ s not just a matter of correcting national policy. just as an earthquake reveals how structurally unsound a building is, so the crisis has exposed the shortcomings in the framework of the monetary union. what is more, the architects of the maastricht framework underestimated certain elements which exacerbated the crisis, such as the contagion effects between the individual countries or between banks and governments as well as the significance of national macroeconomic imbalances. essentially, there are two possible paths to a more stable monetary union. either we dare to take the step towards deeper political integration or we enhance the current framework and strengthen the countries ’ individual responsibility as a constituent element of the monetary union. deeper political integration could, for example, be a fiscal union. however, a fiscal union must not simply mean a greater mutualisation of liability : that would be a transfer union. a serious fiscal union would require the member states to transfer national sovereignty to the community level by giving the community the necessary right to intervene in the event of unsound public finances. liability and control must be kept in balance if the incentive to incur debt, which is inherent in the monetary union, is not to be increased and if the monetary union is to prevail as a stable monetary union. bis central bankers ’ speeches such a transfer of sovereignty would be a radical move and require wide - ranging legislative changes nationally and at the european level. above all, such a step towards greater integration would need not just political support but also public backing from the individual countries. on

ric battellino : the reserve bank of australia ’ s thinking on the economy over the past year address by mr ric battellino, deputy governor of the reserve bank of australia, to the economist ’ s bellwether series : australia, sydney, 23 august 2011. * * * over the past year, the australian economy has been subject to a number of strong, often countervailing, economic forces : strong demand for commodities, rising global inflation, global financial market instability, consumer caution, slower population growth and slow productivity growth. the economy has also been affected by severe weather events. today i would like to look back over the year and review how these forces have shaped the economy and the reserve bank ’ s thinking on monetary policy. if we start by casting our minds back a year ago, you will recall that the bank at that time was starting to contemplate whether it should move from a relatively neutral setting of monetary policy to one that was slightly restrictive. the global economy was growing at a solid pace, though with clear downside risks. domestically, a rebalancing in demand, from public to private spending, was starting to take place ; the outlook for business investment was particularly strong. employment was growing very quickly, unemployment had fallen back to just above 5 per cent, and inflation was forecast to reach the top end of the target range over the subsequent couple of years. the board ’ s assessment of these circumstances was that, if they continued and the economic outlook evolved as expected, there would be a case to raise interest rates a little at some point. however, the uncertainty in global markets, due to the spread of sovereign debt concerns beyond greece, was seen as posing downside risks to the global economy, and consequently to australia. also, the strong exchange rate and weak demand for credit pointed to financial conditions perhaps being somewhat tighter than might be indicated simply by reference to interest rates. these considerations were seen as reasons for caution and, in the event, the board held interest rates steady through to november 2010. by the november meeting, financial market volatility had declined and the chinese economy was continuing to grow strongly. earlier downside risks to global growth had diminished somewhat and it was becoming clear that global gdp would record a very strong increase for 2010 as a whole. domestically, employment had continued to grow very quickly. while there were significant differences in the performance of various sectors of the economy, overall it appeared that resource utilisation in the economy was tightening. the