of covered bonds. • second, covered bonds are different in nature from the various asset - backed securities that became so popular before turning sour with the financial crisis. importantly, covered bonds do not involve the transfer of the credit risk implied by underlying assets from the issuer to the investor. the credit risk stays with the originator, preserving the incentives for prudent credit risk evaluation and monitoring. we could therefore say that covered bonds are incentive compatible while many asset - backed securities were not, at least not in the way the concept was implemented before the crisis. i have previously mentioned that covered bonds – pfandbriefe – existed in germany already 200 years ago. given that the financial crisis clearly exposed the dire consequences of the imprudent evaluation of credit risk, the usefulness of more conservative asset classes such as covered bonds, which have proved to be safe assets over a long time, is obvious. we are confident that this measure will contribute to support financial markets. the announcement effect has been encouraging. the purchase programme started last week and will be conducted gradually, stretching well into next year. we are already seeing a number of new issuances of covered bonds and a degree of compression in the spreads in this important segment, which might have an influence also on other financial markets. v. monetary and fiscal assignments this brings me to the last point in my speech. the ecb ’ s enhanced credit support measures are designed in full respect of the euro area macroeconomic framework. financial support measures potentially involving the significant transfer of credit risk from financial institutions to the taxpayer clearly fall within the realm of fiscal policy. our decision to conduct outright purchases of covered bonds is fully consistent with this fundamental principle. while they are expected to be effective in supporting credit, these purchases do not burden the eurosystem with excessive credit risk. more generally, i have already mentioned that different environments call for different actions, even if there is agreement among central banks about the ultimate objectives. this helps to explain why the ecb ’ s enhanced credit support measures, by contrast with the concepts of “ credit easing ” and “ quantitative easing ”, do not involve outright purchases of sovereign debt. on this feature, i would like to make three comments, stressing pragmatism, principles and preparations for exit. first, there is a pragmatic explanation. history matters to a prominent degree. in the united states, for example, in normal times outright purchases and sales of treasury bonds with short maturities belong to the

mr stark discusses the worldwide currency situation and international monetary cooperation speech by the deputy governor of the deutsche bundesbank, dr jurgen stark, to elec in kronberg on 4 / 12 / 98. i anyone comparing the global economic policy debate at the end of 1998 with the debate last year will notice not only a number of similarities but also some striking differences. it is true that there was already a debate under way at that time on the crises of some countries in south - east asia. in fact, president tietmeyer spoke in depth about them to elec pointing out potential domino effects. a general optimism prevailed in the public debate, however, particularly in respect of future developments in the us economy. at all events, i can well recall headlines announcing the ‘ end of the business cycle ’ and predicting the arrival of the ‘ new economics ’, which probably referred to the theory of continuing progress in productivity or even the end of the economic problem of supply and demand itself. quite often, it is the same commentators who only a few weeks ago were forecasting a ‘ global economic crisis ’ with a similar supposed degree of certainty and evoking the start of a world recession. two months ago – at the annual meetings of the imf and the world bank – talk was still of ‘ doom and gloom ’. but today we can read again headlines like ‘ crisis, what crisis? ’ however, a return to the garden of eden and the decline of the old world are events that tend not to happen very often. at all events, we are still alive. the fact that people fail to strike a balance between optimism and pessimism was pointed out recently by the us economist paul romer, one of those talented people in his profession who are wrongly claimed to be proponents of the ‘ new economics ’. one cannot escape the feeling that one - sided and exaggerated perceptions are contributing to the present problems of the global economy. do they not create sentiment and expectations that tend to strengthen rather than reduce the much lamented herd behaviour of the markets? anyway, the transparency of opinions about supposed facts stands in sharp contrast to the transparency of the facts themselves. the media and the markets produce and process information incessantly. the question is whether it is the relevant information. if that were the case, there would scarcely be an international debate on improving transparency in the financial markets. ii certainly, a ‘ worst case scenario ’ can never be completely ruled out in theory, although a scenario of that kind depends