facilitate such reforms. the primary mandate and the best possible contribution of the eurosystem is precisely to ensure price stability in the medium run. then, to the extent that dysfunctional financial - markets are likely to jeopardize our ability to maintain stable prices in the medium run, the eurosystem must intervene. this analysis has motivated our decisions in the past and will continue to motivate future ones. this brings me to the second part of my talk today. 2. measures taken by the eurosystem to fight against the financial crisis our analysis of the recent situation suggests that the weak outlook for economic activity in the euro area is weighing downward on costs, wages and prices. accordingly, the governing council decided twice to lower the key ecb interest rate by 25 basis points, in its early november and early december meetings. changes in the ecb rates ultimately affect inflation through changes in bank lending rates, monetary and financial conditions and aggregate demand. under normal financial - market conditions, monetary - policy transmission mechanisms work properly and non - standard measures are unnecessary. but when transmission mechanisms are impaired, standard policy is likely to be less effective. in such exceptional circumstances, extraordinary, or nonstandard, measures must be implemented. it is in that spirit that the eurosystem has constantly and reactively updated its set of non - standard measures, keeping pace with the crisis ’ developments. on december 8, we have announced extensive measures to contain the refinancing risks of euro area banks. the eurosystem has announced in particular two longer - term refinancing operations with a maturity of 36 months which will be conducted as fixed rate tender procedures with full allotment as well as the extension of the collateral it considers eligible to borrow its liquidity. we also have reduced the rate of reserve requirements from 2 % to 1 %, which is also contributing to stem collateral constraints of parts of the euro area banking system. i would like to recall again that, in the euro area, banks are the main channel for mobilizing domestic savings and financing investment. this explains why ecb ’ s non - standard measures have primarily aimed at enhancing access of the banking sector to liquidity and at facilitating the functioning of the euro - area money market. given the topic of the current conference, i would like to take the opportunity to elaborate on one of these non - standard measures, namely the securities market programme, or smp. sovereign yields are central in the transmission of monetary policy, in

particular because government bonds provide a floor to the private - sector funding costs. this is the reason why we launched the smp. bis central bankers ’ speeches i insist that, through the implementation of all its non - conventional measures – including the smp – the eurosystem has fully played its expected role as a lender of last resort ( llr ), by which i mean that we have and we will intervene to stem liquidity crises that threaten the stability of the banking system. having said that, it is clear that engaging in large - scale asset purchases of sovereign bonds is well beyond what should be expected of a central bank ’ s role as a llr. moreover, largescale asset purchases are not without risks. while they may help to alleviate upward pressures on long - term interest rates in the short run, they could also affect price and financial stability in the medium - run, by endangering the value of the central - bank money. such risks do not necessarily materialize, but when they do, the repercussions are dramatic. altogether, considering the different tools are potentially at the disposal of policy - makers, it is crucial to gauge the short - to long - run benefits, limits and risks associated with each of them. i do not think that confidence would really benefit from measures that are known to carry non - negligible long - run risks, even if some short - term relief is expected from them. as a way of conclusion, let me shortly consider the progress that has already been made to solve this crisis and list some of the remaining challenges ahead. first, it seems important to welcome the significance of the fiscal stabilization programs many euro - area governments have committed to. as mentioned earlier, this is a necessary step to restore confidence in a sustainable way. although this is a difficult task, the timely delivery of the promised reforms is necessary. second, beyond individual policy actions, the recent progress obtained in the design of a common fiscal governance in the euro area is of the essence. indeed, many important decisions have been taken in that direction : the creation of the efsf and the esm or the agreement on fiscal rules and surveillance mechanisms during the brussels eu summit on december the 8th and 9th are historical steps in the right direction. obviously, most of these newly established institutions, rules and processes would have been unthinkable four years ago. this makes me really optimistic about our prospects for restoring stability and growth in the euro area. thus,