the book foresaw that the massive implicit liabilities towards the financial sector accumulated by governments could result in unsustainable levels of sovereign debt. despite the important theoretical and empirical advances to which professor rogoff has contributed substantially, there is still much to be learnt about the root causes, the triggers and the propagation mechanisms of crises. the major challenges for policymakers posed by the existing knowledge gaps are reflected in the very controversial debates about the optimal responses to mitigate and resolve the current crisis and to prevent future crises. in this context, since his time at the imf, professor rogoff has featured prominently in global policy debates, producing analyses and making recommendations on how to contain the current crisis and restore overall macroeconomic stability in the euro area. on that very subject, as we all know, conditions in financial markets have taken a turn for the worse since the second half of july and early august. in the euro area, the renewed intensification of financial market turbulence is leading to very high interest rates in some countries, to potentially damaging volatility, and to very low trading volumes in some government bond markets that at times cease to function appropriately. the tensions to some extent resemble those of may 2010, but in some respects they are more broad - based than what we saw at that time. it is clear that sovereign debt challenges in individual euro area countries – no matter their size – can undermine the stability of the euro area as a whole. in view of these developments, the authorities in the euro area have taken a multi - pronged approach to address the concerns about sovereign risk and its impact on the financial sector. regarding fiscal support for crisis countries, euro area governments announced on 21 july a second support package for greece and the introduction of additional flexibility for the european financial stability facility and the future european stability mechanism. in this respect, the full and timely implementation of the 21 july agreement between heads of state or government is crucial. a renewed commitment by all euro area governments to the agreed fiscal targets is of course equally essential. the ecb has also stepped up its responses, reflecting its full commitment to ensuring a continuing smooth functioning of the key euro area market segments, a necessary prerequisite to achieve price stability in the euro area. first, it decided to continue to support ample liquidity conditions by conducting its refinancing operations as fixed - rate tender procedures with full allotment, at least until mid - january 2012. let me point out that the outstanding eurosyst

random walks ” is still the basis of the best practice followed by many institutions. this paper marked the beginning of professor rogoff ’ s long - standing prominence in the field of international finance and was followed by a steady flow of equally distinguished contributions, in some instances literally rewriting history. this was the case with “ the modern history of exchange rate arrangements : a reinterpretation ” co - authored with carmen reinhart and published in the quarterly journal of economics in 2004. professor rogoff has also been at the forefront of modelling efforts in the field of international macroeconomics, particularly with a view of replacing the mundell - flemingdornbusch open economy model, previously the workhorse of virtually all policy analysis in international economics both inside and outside central banks. this ground - breaking effort, reflected in the work written jointly with maurice obstfeld entitled “ foundations of international macroeconomics ”, gave birth to a new field in “ new open economy macroeconomics ” and spurred a vast and ever - growing literature. this new approach has allowed both researchers and policymakers to analyse substantive issues, such as current bis central bankers ’ speeches account and fiscal imbalances, and to provide a welfare - theoretic perspective on global macroeconomic policy. as the imf ’ s chief economist between 2001 and 2003, professor rogoff launched the development of a large - scale version of his model with maurice obstfeld, the global economy model ( gem ), one of the first fully - fledged dynamic stochastic general equilibrium ( dsge ) models to be used for policy analysis. more recently, he has offered us invaluable insights into financial crises. his 2009 bestselling book with carmen reinhart, this time is different, is a landmark work. this tour - deforce, drawing on data for 70 countries over 800 years, provides evidence that financial crises are far more universal, and that there are far more quantitative similarities in their aftermath, than previously believed. the “ this - time - is - different - syndrome ” is a powerful reminder of the dangers of complacency. one key observation is that financial crises are followed by unusually prolonged recessions in economic activity. another valuable insight is that the fiscal and financial dimensions are closely interconnected. fiscal imbalances can undermine the financial sector ; financial sector imbalances can weigh down on the credibility of the sovereign ; both can spillover into the real sector, and vice versa.