economic destiny ” 5. now, austria has not become a bigger country than it was in those unhappy days, but something else has changed in our favor since then : we are now members of the european union and part of the euro area. in contrast to previous crises, this time our efforts to fight the recession are part of a coordinated european macroeconomic recovery plan upon which the european commission and the eu member states already agreed in november 2008. if we compare the situation with our last recession before entering the eu, which took place in the early 1990s, monetary union with our key trading partners is very helpful as it prevents competitive devaluations by some neighboring countries that harmed our economy back then. in that sense, the euro has worked as a shield for small open economies all over europe. what needs to be done now? policy makers are confronted with two main tasks at the moment. on the one hand they must restore stability in financial markets by bringing back liquidity, recapitalizing banks and getting toxic assets off banks ’ balance sheets. in europe, we have some examples that can serve as guidance for how to deal with a banking crisis, for instance the swedish and the finnish experience of the early 1990s. ( if anything, our own austrian experience from the 1930s would rather qualify as an example of how not to save banks. ) in austria we have already taken measures to establish confidence among savers, and our government has also presented a stabilization package for banks, to which it has allotted 100 billion euro, which is roughly 1 / 3 of the austrian gdp ; 15 billion euro are reserved for recapitalizing banks, 75 billion for bank guarantees and an additional 10 billion for insuring the domestic deposit protection. in terms of gdp, the austrian banks ’ stabilization package is among the biggest in the eu. paul krugman ( 2009 ) “ the return of depression economics and the crisis of 2008 “, norton, page 4. the second task we now face is to fight the global recession and prevent it from turning into a lasting depression. this is a challenge for both monetary and fiscal policy. the main objective of monetary policy in the euro area has always been to preserve price stability, in the current state of affairs means to prevent deflation. i can assure you that, at the governing council of the ecb we will take all available measures to stabilize the inflationary expectations in the euro area and keep them anchored in positive terrain. we will keep the interest rate very low for as long

a time as is required, and we stand ready to use unconventional measures of quantitative easing to assure european firms and consumers access to credit at appropriate conditions. as for fiscal policy, the necessity of a large and timely stimulus package is most obvious. olivier blanchard and others from the imf 6 explained concisely late last year how such a stimulus package should look like. it should be broad - based as the crisis will hit each economy as a whole ; it should be fairly long - term as this crisis won ’ t go away next quarter ; and it should be supported by as many countries as possible as this is a global crisis and it is not the time for beggar - my - neighbor policies. although the automatic stabilizers in most european countries help to adjust for the loss in effective demand, some additional discretionary spending is now needed. the crisis also highlighted differences between the eu and the u. s. in terms of fiscal policy. while the two regions are roughly comparable in economic size, the eu lacks a federal budget like the u. s. in times of crisis, when timely and targeted action is warranted, the eu with its budget of 1 % of total gdp is rather shiftless compared to the u. s. federal budget of more than 20 % of gdp. in terms of fiscal policy, european countries are mostly on their own when fighting recessions. like in the u. s., not all states within the eu are affected in the same way by the crisis ; but those eu member states which are hit most severely by the crisis now are also the ones which will amass high budget deficits very quickly and therefore find it harder to finance their stimulus spending. some of the new eu member states have been affected rather harshly by the crisis already, and unfortunately it has not been understood yet by all remaining countries that assisting those countries is not only an act of european solidarity, but that it is also in their economic interest to support those countries which have relatively high import demand for their products. like in the so - called “ tequila crisis ” of 1995, it was not immediately understood by all politicians in washington that helping mexico was in the best interest of the u. s., but thankfully those in charge in the administration knew how to deal with the situation. it also took some time before policy makers in europe did recognize that it was in the best interest of europe to pave the way for a european initiative for economic stabilization and recovery. for instance, the european council at