that as “ policy and structure become inextricably combined, their joint product is what matters. … one way to alter the operating properties of the system … is to change the policy rule. another way is to change the structure ”. 10 and it was to changing structures that he devoted much of his intellectual and professional life. for several years, while still at the bank of italy, he was chairman of the basel committee, where he initiated a process that would lead to what came to be called the “ basel ii ” accord. the regulatory system was built around the basic notion that banks should set aside capital to guard against the various types of risk : credit, market, operational. the financial crisis has taught us that both the assessment of and the allowance for these risks were vastly inadequate. tommaso recognized this. still, he maintained that basel ii was definitely better than the previous accord precisely because it sought to specify in detail the various risks in banking and to provide, through its “ three pillars ” construction, a comprehensive framework to deal with them. he conceded that substantial changes at the technical level of the accord were necessary, but he emphasized, in his per jacobsson lecture last june, that “ what really went wrong is on the side of the government [ which ] was captured by the myth that finance can regulate itself spontaneously and hence retreated too much from the regulatory and see, on this, his book co - authored with michael emerson, mervin king, jean - claude milleron, jean paelink, lucas papademos, alfredo pastor and fritz scharf, efficiency, stability and equity. a strategy for the evolution of the economic system of the european community, oxford university press, london, 1987 see, “ the ems is not enough : the need for monetary union ”, 1987 ( chapter 6 of the road to monetary union, cit. ), and “ squaring the circle, or the conundrum of international monetary reform ”, in catalyst, a journal of policy debate, spring 1985. the road to monetary union, cit., p. 22. see, finally, the euro and its central bank. getting united after the union, mit press, cambridge, mass., 2004. james tobin, “ financial structure and monetary rules, in kredit und kapital, 2, 1983, quoted in “ reshaping monetary policy ”, cit. p. 283. bis central bankers ’ speeches supervisory role that is necessary to ensure

where price stability is credibly delegated to the central bank can confer greater freedom of action in economic policy. this may seem paradoxical but if people feel they can rely on the central bank, in an economic slowdown it may be possible to ease the monetary stance without triggering higher inflation expectations and bond rates, because everyone counts on policy being tightened before inflation moves up. we have experienced something of this sort in sweden in the past year. in a system with poor credibility, a monetary easing may be perceived as a sign of a lasting upward shift in inflation. this in turn may generate self - fulfilling expectations, with future problems when efforts are made to control inflation once more. it is understandable that the risk of this is seen as particularly great in economies where inflation has been high for a long time. a more independent central bank is thus in a better position not only to maintain low inflation but also to operate at times with a policy that includes an element of stabilisation ( though the problems of fine tuning stabilisation policy should not be underestimated ). the german central bank is one example ; over a series of decades, economic slowdowns could be parried by lowering the short interest rate fairly rapidly and markedly. it may be in place to point out that credibility and, for that matter, independence can be achieved in various ways. some countries have recently clarified their regulations so as to bring them into line with the arrangement i have just advocated. one example is new zealand. in other countries, for instance the united states, policy has been conducted so that it has gradually earned increasing confidence within the time - honoured system. in my opinion the rule system is important ; it reflects the general commitment to monetary policy and can provide a short cut to credibility. in a democratic society, however, monetary policy is ultimately founded on popular support. that is one reason why it is important for the riksbank to operate in such a way that confidence is created in the policy of price stability. among other things, this calls for a clear intellectual framework that can be evaluated and for an open discussion about the direction of monetary policy. delegates accountable to a democratic body an argument that is heard from time to time in the monetary policy debate is that the delegation of monetary policy ’ s construction to an independent central bank would be undemocratic. in my view that is incorrect. the riksbank is an agency of the riksdag ( sweden ’ s parliament ), which clearly