too. if we plan to follow this route, the central banks need to have the instruments to achieve the objectives assigned to them. interest rates are typically used to adjust monetary conditions to the objective of price stability. if the central bank is also to pursue financial stability, it needs to have another instrument at its disposal. in particular, if the objective is to counter the procyclical behaviour and excessive accumulation of leverage on the part of agents which are at the root of speculative bubbles, the central bank must be able to use instruments which affect the structure of bank balance sheets. it must be able to affect, for example, borrowing capacity, leverage, liquidity management methods or the way in which reserves are recorded in favourable phases of the cycle in order to be able to face the negative phases. these are the instruments of what is known as macro - prudential supervision, which are used in a preventive manner. in this regard, the de larosiere report was prepared in europe in order to draw some conclusions from the crisis. 8 however, the report restricts the central banking system ’ s scope for action to simply issuing recommendations, while direct interventions with regard to the variables at the root of financial imbalances are not foreseen. the responsibility for implementing, or not implementing, the macro - prudential recommendations remains a national choice, to be made by the relevant supervisory authority. there is no guarantee that these measures will be taken in a uniform manner and in line with the need for stability within the single market. competition between national financial centres in reality risks deterring national authorities from adopting measures proposed by the european authority. k. assenmacher - wesche and s. gerlach ( 2008 ), “ can monetary policy really be used to stabilise asset prices? ”, available at www. voxeu. org. j. c. trichet, “ closing address at the fourth ecb central banking conference ” on “ the role of money and monetary policy in the twenty - first century ”, frankfurt, 10 november 2006 ( http : / / www. ecb. int / press / ). report of the high level group on financial supervision in the eu, brussels, 25 february 2009. it is not only in advanced economies that monetary policy has encountered problems. alan greenspan has claimed in particular that the increase in global liquidity of the past few years was not caused by the interest rates decided by the us central bank, but by the financing

lorenzo bini smaghi : towards the g8 – strategies for emerging from the crisis speech by mr lorenzo bini smaghi, member of the executive board of the european central bank, at the universita luiss guido carli, rome, 27 may 2009. * * * i would like to start by thanking the organisers of this conference for the invitation to reflect together on the topics related to the next g8 summit. there is no doubt that the economic and financial crisis, the most serious of the post - war period, will take centre stage at the upcoming international meetings. today ’ s conference is entitled “ strategies for emerging from the crisis ”. it is right to speak of strategies, because intervention is required at a number of different levels. these concern financial regulation, the governance of institutions and companies, the ethical behaviour of economic agents and legislators, and economic policies. looking at the composition of the panel for this conference, it seems to me that my comparative advantages chiefly relate to this last area, that of economic policies. there is no doubt that the economic policies of recent years have played a role in creating the conditions which have led us to this crisis. they were not the only factor, perhaps not even the main one, but they were important, because they tended to heighten, rather than to counter, the procyclical behaviour of agents. for example, in countries where the private sector was already highly indebted, economic policies sometimes promoted further borrowing, in particular through low interest rates and fiscal incentives. if we wish to avoid recreating the conditions which led to this crisis, we must carefully examine the motives behind the economic policies that were implemented during this period. this exercise can be conducted at two levels. the first implies analysing the economic policies on the basis of the specific reference criteria of those policies. a policy may turn out to be inappropriate, for example, because it is based on incorrect economic forecasts or because it is implemented through ineffective instruments. thus far, the discussion has mainly taken place at this level, and the remedies suggested have mainly been aimed at correcting these aspects. it is an important discussion, without a doubt, but there is a risk that such discussion is insufficient because it does not tackle the fundamental causes that led economic policy - makers to take certain measures. for this reason, a second, more profound level of analysis is necessary. let us proceed in order. let us begin with the first level