then must be done? the debt - ceiling fiasco in the united states and the inability, to date, of european policymakers to get ahead of their crisis have reduced investor confidence in the effectiveness of policy. the combination of high debt loads and unpredictable politics is toxic. still, it is important to distinguish between the willingness to act and the ability to address the current challenges. there is much that policy can do. the european situation is fragile but fixable ; manageable if it is managed. the european central bank stands ready to supply virtually unlimited liquidity to european banks. this should prevent the sort of dramatic liquidity events we saw in 2008, but it is not a cure. banks in these situations become highly defensive. the lesson of japan in the 1990s is that once such behaviour starts, it is hard to reverse. the point of central bank efforts is to create a bridge. the follow - up actions must be swift and sizeable. european authorities need to move decisively to contain the crisis. measures taken must draw private capital back in, rather than merely fund its exit. actually implementing announced measures will start to rebuild confidence. enhancements to existing european funding facilities should be put in place. financial reforms, including basel iii capital measures, should be implemented in a timely fashion. paths for sustained fiscal consolidation should be established, consistent with the agreement reached at last year ’ s g - 20 summit in toronto. but more is required. in the bank of canada ’ s opinion, what is needed now is a comprehensive capital plan for european banks, and crucially, a sizeable funding backstop for european sovereigns. the reality is that the best commitments and even the most binding legislation will not restore investor confidence overnight. as canada learned in the mid - 1990s, countries need to build a sustained track record of tangible results in order to rebuild trust. similarly, structural policies to enhance growth have a long pay back. thus, european authorities must create time to re - found their monetary union based on credible fiscal arrangements and more flexible economies that can adjust quickly to inevitable shifts in internal european competitiveness. in our opinion, the existing european resources, including the european financial stability facility and the european central bank facilities, can be used much more efficiently to create a multi - year window for these adjustments. just as demand must be rebalanced in europe between countries with current account deficits, such as spain, and those with surpluses, such as germany, so too must it adjust globally. under current

##ary monetary policy has limited the policy tools of central banks. domestic monetary policies of national central banks now face the money flows from international sources which have the potential for making domestic policy less effective. at the same time the wide disparity in interest rates and inflation rates across the globe is narrowing. inflation and monetary policy while central banks in this region have multiple goals of ensuring financial stability, executing monetary policy and helping to develop a stable economic and financial environments, price changes and inflation control have not been a major issue as it has been seen in latin america in the 1970s and 1980s. also, in the developed world inflation targeting is an important objective of central banks. indeed, noted economist ken rogoff and others have pointed out that to the extent that globalisation increases the degree of competition, it can reduce the “ inflationary bias ” or, to put it differently, it can strengthen the anti - inflation credibility of a central bank. by promoting greater price flexibility, competition lowers gains in the short - run to output from an unanticipated inflation. the improved credibility of the central bank ’ s commitment to keep inflation low and stable should, in turn, allow it to deliver better inflation outcomes with fewer short - run costs to what many may consider as political objectives of economic growth and employment. it is however often not quite clear whether the successful control of inflation has been a result of inflation targeting policies or of competition from south east asia, china and india and other developing countries which has driven prices down. however, in the caribbean inflation targeting has not been the major goal of monetary policy up to now, but rather a subsidiary goal. and this has been largely because much of our inflation has been imported. however, high oil prices, the more rapid growth of regional economies in recent years, coupled with expansionary fiscal policies and demand pressures of expansion of some regional economies, has brought the spectre of inflation more to the fore. this has been so more in the rapidly growing economies elsewhere in the caribbean, but countries like ourselves have not been exempt. while the monetary policy levers for control of inflation may be limited, the fact is, inflation control is likely to become a more central part of both policy making than before if oil prices remain high. this however may have less to do with regional central banks adopting inflation targeting as a goal and more with the goal of ensuring that monetary and other policies do not contribute to the imported component of inflation over which we are aware is beyond our control, if