. if efsf buys bonds, wouldn ’ t that take a monetary function away from the ecb and give it to a fiscal authority? trichet : as all our non - standard measures, the securities purchase is indeed meant to help restoring a better transmission mechanism of our monetary policy. it is clear that if markets are functioning better more generally then we have less problems in the transmission of monetary policy. in any case, the main tool to improve the situation is to restore the credibility of individual governments themselves. wsj : should countries be able to borrow money from the efsf for bank recapitalization without having to apply for a full bailout? trichet : these are the responsibilities of the governments. we are asking to demonstrate full responsibility for economic and financial stability through a quantum leap as regards the economic governance in the euro area, a quantum leap in conditionality and greater flexibility in their utilization of the mechanism. wsj : you have said there is a sense of urgency to improve the efsf. governments appear to have put off any changes until march at the earliest. do you think leaders are showing a sufficient sense of urgency? trichet : since the beginning of the turbulence, i have said we needed to demonstrate – all of us, all authorities – a solid sense of direction, a sense of responsibility and the awareness of the necessity to be ahead of the curve and not behind the curve. i maintain that. wsj : what do you think the risk is that this wrenching process will cause the breakup of the euro or its membership? trichet : of course the euro is there and will be there in the future. i do not comment on what i consider absurd hypotheses. i am used to such questions from the very beginning of the euro. the paradox is that, years ago, the question was about germany supposed to be at that time the “ sick man of europe ”. i was responding that germany was doing hard work that its economy was catching up on competitiveness. now the same hard work has to be done by those that were growing rapidly over the past years but at the same time had lost their competitiveness. one has to accept that within a vast economy that has the size of the euro area, with 331 million people, there are economic differences. for instance when i look on both sides of the atlantic i see that the differences between the fastest and slowest - growing u. s. states, it is more or

other financial intermediaries ( ofi ), which have remained at a smaller scale in the european context, and insurance corporations and pension funds ( icpf ). however, within the financial accounts both the ofi and icpf subsectors were firmly part of the picture in the context of our monetary analysis even in the absence of more detailed primary sources. 3 following the identification of important gaps, improved primary statistics will indeed soon be coming on stream in the context of ecb regulations on financial vehicle corporations, investment funds and enhanced information on securitisation activities by banks. i should stress that these gaps were identified as important priorities well before the outbreak of the financial crisis. some of the most insightful work on the origins and evolution of the financial crisis has been based on flow - of - funds data. for example, back in november 2006 at the ecb ’ s central banking conference on the role of money, h. s. shin pointed to the leverage targeting behaviour by u. s. broker dealers ( investment banks ) as a crucial pro - cyclical element in the credit and asset boom at the time. subsequently, in a string of papers he has highlighted the interaction of sectoral flows and balance sheets, as available from the flow - of - funds, in the propagation of the subprime crisis through financial intermediaries and feedback loops to the wider economy ( see adrian and shin, 2008a, 2008b, and shin, 2009 ), with important implications also for the design of financial regulation as suggested in this year ’ s geneva report ( brunnermeier et al., 2009 ). it is now widely argued that the japanese experience of deflation during the 1990s, was driven by protracted balance sheet adjustment by firms and the financial sector in the wake of the prior bubble in asset markets ( koo, 2008, hattori et al., 2009 ), much reminding us of irving fisher ’ s debt deflation analysis of the great depression. in today ’ s situation again, the health of non - financial and financial sector balance sheets is at the centre of attention as a possible constraint on borrowing and lending as well as agents ’ capacity to spend. looking at the flow - of - funds in conjunction with the international investment positions light can also be shed on the international dimension of the crisis. brender and pisani ( 2009 ) have argued that the appetite for borrowing by u. s. households had its counterpart in excess savings elsewhere, which resulted in