: completing the architecture of emu let me conclude. the euro deserves trust – and trust in the euro as a currency depends on trust in the euro as a project. the ecb, with the legitimacy provided by the fulfilment of its mandate, will do everything within this mandate to ensure price stability in the euro area and therefore trust in the euro as a currency. but trust in the euro as a project relies on a more complex framework and structures. bis central bankers ’ speeches in a recent article, 6 the german philosopher jurgen habermas and his co - authors argue that a rallying cry of the american war of independence – “ no taxation without representation ” – has a new and unexpected resonance in today ’ s europe. once we create scope in the euro area for policies that result in redistributive effects across national boundaries – they write – european legislators who represent the people must be able to decide and vote on these policies. i tend to sympathise with this view. european leaders have a great opportunity to rectify the now apparent failings of emu ’ s institutional structures. in particular, the financial market architecture must be at the centre of our discussions on the future of emu. the intellectual foundation of the monetary union is robert mundell ’ s insight that exchange rate stability, financial integration and national monetary policies are incompatible objectives : a concept that has been called “ mundell ’ s trilemma ”, or the “ impossible trinity ”. we now find ourselves bound by a concept that dirk schoenmaker has called the “ financial trilemma ” : 7 namely, that pursuing simultaneously financial stability, financial integration and national financial policies is unfeasible. any two of the three assignments can be combined, but not all three. in this crisis, financial integration in the euro area but national responsibility for financial policies has resulted in financial instability. we can solve this trilemma either by going back to financial markets delimited by national borders or by passing financial and crisis management policies to the euro area level. the latter is the only viable solution. it is the most conducive to economic growth, as it will help european companies and households reap the benefits of a single financial market based on a deep pool of savings. some institutional reforms have already been undertaken. they represent a great step forward. we have made national fiscal policies more responsible under the fiscal compact, and subject to stronger surveillance. we have created a permanent

the economy. it relies on the market - functioning channel and aims to reduce the spread between the yield paid by risky securities or standard loan contracts and risk - free securities with the same maturity. it does not necessarily aim to inject additional stimulus in lower - bound conditions, but to repair a breakdown in asset pricing and in the functioning of the credit market. so far, the ecb has consistently adopted the second approach to non - standard policies. in the early phase of the crisis, we re - absorbed the liquidity risk and the market counterparty risk that banks were facing in interbank transactions. in keeping with this second approach, the aim was to repair the functioning of the market, not to add stimulus in a situation in which the policy rate was still positive. omts, as their name suggests, will operate through outright transactions, not lending operations. but, in essence, they have the same purpose as the non - standard measures we adopted in 2008 and 2009 : to price out a type of catastrophic risk premium that investors demand in conditions of market paralysis. it was break down risk in the early stage of the crisis, the risk that the payments system would seize up completely. it is break - up risk now. the policy intervention works by reducing the supply of long - duration securities considered as risk - free and increasing the supply of zero - duration reserves. to the extent that private investors do not view these assets as perfect substitutes, in order for private investors to be willing to make those portfolio adjustments, the expected return on the long - duration securities has to fall. with less duration risk to hold in the aggregate, the market should require a lower premium to hold that risk. to the extent that the pricing of long - dated risk - free securities provides a floor for the pricing of any other types of long - dated securities, this operation is expansionary as it lowers the whole yield structure. bis central bankers ’ speeches there is another parallel between our early liquidity operations with banks and omts. in providing liquidity to our banking counterparties, we cannot and do not want to subsidise banks that are failing. our liquidity support is not and should not be equity support. likewise, in pricing out the break - up risk in sovereign debt securities, we cannot and do not want to subsidise governments. our interventions can only take place in the secondary market : they are not fiscal transfers and adequate safeguards are attached so that they do not become so. while banks