let us call it – “ pre - lehman ” levels. expecting “ pre - crisis ” - levels to make a comeback – the time when risk was significantly underestimated – is neither realistic nor desirable. however, sustainable relaxation in the inter - bank money markets requires a sustainable return of confidence in the financial markets. in order to achieve this aim, it is necessary that the process of restoring banks ’ balance sheets continues, supported by public stabilisation funds. emu and the financial crisis for european monetary union, the financial crisis is certainly posing the greatest challenge in its history. when we recently celebrated the tenth anniversary of the single currency ’ s inception, it was often stated that the first ten years of the euro were a success story with regard to price stability, trade and financial integration in europe. however, it was also stated that the years ahead are likely to become even more challenging. one could say that emu is reaching puberty – if you have children, you will know what i mean. nonetheless, the value of monetary union has never been greater than during the financial crisis. try to imagine what would have happened without the single currency! probably, foreign exchange markets within the single market would have been driven by speculative activities. think of what happened in the early 1990s. currency fluctuations would aggravate both the financial crisis and real economic tensions – and do not forget the political turbulence implied by such currency tensions. it has been clear from the beginning of monetary union that there has been a greater emphasis on the responsibility for fiscal policies, wage policies and structural policies, which remains at the national level. in a nutshell, monetary union requires flexible labour markets and sound public finances – this holds true especially during times of crisis. with regard to fiscal policy, respecting the provisions of the stability and growth pact is of the essence. what is needed is a credible and strong commitment to reducing excessive deficits and to returning to the path of consolidation. rising cds premia on sovereign bonds have induced speculation about potential defaults on the part of emu countries. any concerns in this regard are unfounded and only purely hypothetical. while it is in general welcome that financial markets punish unsustainable public finances, it has to be acknowledged that even euro area member states with high yield spreads are currently facing favourable refinancing conditions given the unprecedented low interest rates. it should be emphasised that the “ no - bail - out ” rule, as stipulated in the ec treaty, is an indispen

policy. the subprime crisis in the us has often been referred to as the trigger for the financial crisis, but the root causes of the current crisis lie deeper. in a nutshell, we experienced an enormous credit boom during a period before, characterised by an extreme undervaluation of risk. this was supported by favourable macro - economic conditions – not least, interest rates that were too low for too long. excessive risk - taking was further encouraged by a lack of transparency and market failures in the process of credit risk transfer. pro - cyclicality in the institutional design of financial markets, such as capital adequacy rules, accounting rules and remuneration schemes, also encouraged extreme leverage in the financial system while they are now contributing to a fatal deleveraging. when the famous “ wake - up call ” occurred, financial markets panicked and suffered a massive liquidity shock. from the onset of the crisis, in august 2007, the eurosystem began supporting the financial system, especially in terms of frontloading liquidity provision during minimum reserve periods and extending the average duration of its open market operations. these measures helped financial institutions through a period of unprecedented high volatility on inter - bank markets. however, after the collapse of lehman brothers and the ensuing “ earthquake ” of september 2008, the eurosystem had to extend its liquidity operations vigorously in order to keep euro area money markets alive. several measures were taken in order to calm the markets, of which the temporary guarantee of full allotment at fixed rates has been the most important. furthermore, we have temporarily widened the scope of eligible collateral and we have stepped up providing relief to euro area financial institutions via currency swap arrangements with liquidity in foreign currencies. taken all together, these measures have resulted in the eurosystem assuming the role of the central counterparty in the money market. while this has saved euro area financial markets from breakdown, it is obvious that playing this role is something that cannot and should not last forever. however, the other post - lehman measures are staying in place for the time being owing to the ongoing vulnerability of the money markets. in particular, the governing council of the ecb has declared that it will continue the fixed rate tender procedures with full allotment for as long as needed and, in any case, beyond the end of 2009. while volatility in euro money markets is still very elevated, we can observe that some relevant risk - spread indicators are trending back to –