. for that to happen, economies have to perform better. what we see in france is in fact going in that direction. there is a reform momentum which i think has two dividends : one for the french economy itself and one for the euro area. france is a very large country, the second - largest country in the euro area. the euro area needs reforms and having a strong french economy is also something that can set off a series of dialogues, a series of reforms right across the euro area. france is now taking the path of that reform momentum and growth momentum? yes, but i don ’ t want to judge the ways and means of the french government, or the sequence of reforms. no, but as for the priorities set, labour law, public sector, then pensions, is it roughly what you recommend? labour law, the functioning of the labour market, of course, including training, which is essential. in that respect, the good news is that the government is vigorously tackling the reform of vocational training. this is just as important, if not more so, than the flexibility of the labour market and labour costs. for a very long time, emphasis was placed on the cost of labour in france. i don ’ t think now that the cost of labour is a major obstacle compared with germany, compared with france ’ s competitors. however, we do have a training problem which shows up in all the international surveys, and it is increasingly the priority. and the government is working on it. there ’ s been talk of a “ budgetary jackpot ” this weekend, how do you regard that? what are your comments? it ’ s a slightly ridiculous discussion ; i spent 15 years at the ministry of finance in a previous life. whenever france ’ s deficit goes below 3 %, there are some good souls who speak of a jackpot. if you listen to them, it means that 3 % will not be the upper limit of the deficit in france, it will be the lower limit ; it means that the deficit will never go below 3 %. government debt is 97 % of gdp. if our deficit remains at 3 %, it is clear that we are heading towards serious debt sustainability problems. so we shouldn ’ t listen to those good people who think that there is a jackpot when the deficit is a fraction below 3 %. it is a bit like giving an alcoholic sweet to a former alcoholic, so to speak, it seems to me a little dangerous. and

managing the deleveraging process, knowing that crisis management has to complement, but should not obstruct, crisis resolution. they must ensure that the economy does not enter into a downward spiral that would be inconsistent with price stability. but how can they succeed in this task without delaying structural repair? do they have the tools? if not, who can complete the policy framework? how can central banks align shortterm crisis fighting efforts with their longer - term monetary policy strategies and mandates? these are the questions that currently preoccupy central bankers around the globe, albeit to different degrees and a varying sense of urgency. let me frame these preoccupations today with a euro area perspective. i will proceed in three steps : • first, i will highlight the key challenges that central banks and policy makers face when formulating their crisis response in the context of acute deleveraging pressures. bis central bankers ’ speeches • second, i will explain how the ecb has responded to these challenges and how other policy domains have to contribute to tackling the deleveraging risks. • finally, i will reflect on how the institutional framework of economic and monetary union ( emu ) in europe directs, complements and bolsters the ecb ’ s crisis response. 1. ongoing balance sheet adjustments leverage cycles are difficult for central banks to tame, essentially for two reasons : first, they are difficult to empirically identify, measure and describe with available analytical tools, especially in real - time ; second, even if analysts found ways to spot them with reasonable accuracy in real - time, central banks and other macro - policy authorities may need to apply an atypical degree of inventiveness to control the potential macroeconomic fall - out, when leveraging finally goes into reverse. let me explain these two issues one - by - one. 1. 1 identification of the leveraging cycles first of all, it is financial cycles, i. e. long and deep swings in asset values, that policy authorities essentially care about. they do not necessarily care about leveraging per se. leveraging cycles become the problem because, as has long been recognised, swings in asset prices do not pose serious threats to the economy, unless they are facilitated and compounded by trends in debt. this combination and mutual feed - backs between trends in asset values and sustained movements in leverage are what james tobin defined the “ achilles heel of capitalism ”. so, let me concentrate on leveraging cycles, knowing that it is