account and if programmes are so detailed that the country in question no longer has any freedom of action. in that respect, the imf was on the wrong path. things are changing at present, however. i fully support the strategy of focusing in future more on the objectives of securing the borrowing country's ownership and of dispensing with detailed requirements for implementation ( technical assistance should continue however ). but let us not deceive ourselves : the freedom of a patient is limited in any case. it may become even smaller, if the imf keeps out completely. the constraints of the facts may be overwhelming. diseases are likely to take their toll. on the other hand, there is certainly a realistic chance that healing powers are at work. these powers, however, have to be actively supported by the patient ( with or without the imf ). ix much has been done with regard to “ private sector involvement ” ( psi ). but we have not yet arrived at final conclusions. sometimes it seems that this is only a matter of crisis solution. in fact, however, it is not. it is, in my view, predominantly a matter of crisis prevention. that is because the manner of operating in the event of crisis has a crucial influence on expectations. these, in turn, determine the actions of investors at a very early stage and thus the scale of the risks and of susceptibility to crisis. short - term financial assistance from the imf in the event of crisis may be essential, both for the countries directly affected and, as a result of contagion, for the rest of the world. a regular bail - out of the private sector, however, is likely to be counter - productive : · it may have a detrimental effect on the risk - awareness of private investors and obscure the optimal allocation of resources ; · large - scale financial packages may support unsustainable exchange rates ; · large - scale financing by the imf brings about financial burdens that cannot be covered by the fund ’ s resources ; · and, last but not least, endless financing may encourage resistance to the implementation of reforms. my conclusion at this point : the role of the imf should be predominantly a catalytic one. for that purpose, the fund ’ s main instruments should be convincing advice and programmes, not money. priority has to be given to the private market participants. the leitmotif of the fund has to be “ bail - in ”, not “ bail - out

, one of the authors of the federal reserve act, the fed was established to " provide a means by which periodic panics which shake the american republic and do it enormous injury shall be stopped. " 2 today, however, we know that placing the primary focus on financial stability turned out to be problematic. when speculative lending ballooned in the late 1920s, the fed, in pursuit of its mandate, tightened monetary conditions in a situation when inflation rates were already slightly negative. while the fed could not stop asset prices from soaring, its interest rate moves contributed to an economic downturn. this disconnect threw into sharp relief the mispricing in the asset markets. the crash of october 1929 was then followed by waves of bank failures. 1 / 7 bis central bankers'speeches having seen the impact of the great depression, central banks increasingly shifted their focus towards macroeconomic objectives : price stability and – in the case of the fed – employment. financial stability, by contrast, dropped off monetary policymakers ’ radar. the deutsche bundesbank is another example of the role which crises played in the definition of a central bank ’ s mandate. when the bank was established exactly 60 years ago, there was a broad understanding that its primary objective should be to " maintain the stability of the currency ". after the german population had suffered the loss of their savings twice in the first half of the 20th century – in the early 1920s due to hyperinflation, and after the second world war due to the suppressed inflation caused by the wartime economy and the ensuing currency reform – they held price stability in very high store. and so it was widely appreciated by society that the bundesbank interpreted its mandate as meaning that it should maintain price stability. the oil crises of the 1970s and 80s were further events that shaped central banking. it was during this time that the merits of politically independent central banks like the bundesbank and the swiss national bank came into sharp focus. they were able to disconnect their economies from the worldwide inflation train by pursuing policies which were aimed squarely at preserving price stability. as a consequence, their institutional design formed the basis for the global consensus about monetary policy – a consensus which is still in place today : 3 1. central banks should primarily aim to maintain price stability, that is to say, consumer price stability. 2. central banks should be independent of their governments. 4 3. the credibility of central banks ’ commitment to low, but slightly positive inflation – by anchoring inflation expectations