and the capacity to undertake structural reform. responding to short - term imbalances in demand let us first consider the role that national governments continue to play in responding to shortterm imbalances in patterns of demand. it is sometimes argued that the requirements of the stability and growth pact will prevent national governments from using fiscal policy to address these imbalances. however, if implemented correctly and without undue delay, the contrary is true, as compliance with the stability and growth pact provisions will allow sufficient room for manoeuvre. the centrepiece of the budgetary provisions to be respected by member states is the medium - term objective of a budgetary position close to balance or in surplus. sound government finances are important to strengthen the conditions for price stability and for the strong and sustainable growth necessary to support employment growth. moreover, if governments achieve balanced budgets in normal periods of the cycle, they create a safety margin, sufficient to allow the operation of automatic stabilisers in the event of a slowdown, or in the face of unexpected shocks, without risking excessive deficits. the problem at the moment is that in the euro area as a whole we are still far from reaching the target of balanced budgets in normal cyclical conditions. substantial structural imbalances continue to restrict the flexibility of public sector budgets. in a number of countries, deficit - togdp ratios remain close to the 3 % value set in the treaty as a reference for excessive deficits, rather than the medium - term balanced or surplus position envisaged in the stability and growth pact. recent fiscal consolidation has been rather disappointing. a significant increase in overall deficits, for instance as a response to a decline in real gdp growth rates, could reverse the progress we have seen in recent years in reducing deficit - to - gdp ratios across the euro area. moreover, in the case of a prolonged growth slowdown, it is quite possible that deficits will quickly reach excessive levels. so it is clear that it is of the utmost importance that governments make structural improvements to their fiscal positions, as this would allow them to regain sufficient flexibility in their budgets and, most importantly, could effectively contribute to supporting stability and growth in the euro area. however, despite the desirability of achieving this room for manoeuvre swiftly, only moderate fiscal consolidation is currently envisaged for the medium term. a number of stability programmes are aimed at attaining the necessary flexibility only at a relatively late date, and this is on the assumption of

macroprudential tools contained in the ssm regulation are thus specific aspects of the financial stability mandate of the ecb, which is based on the specific authorisation in article 127 ( 6 ) of the tfeu. neither the ssm regulation in general, however, nor article 5 in particular confers a general competence on the ecb in the fields of financial stability and macroprudential policy. democracy, independence and financial stability when we interpret the competences of public institutions we are essentially discussing the limits of their powers. as with any discussion on public powers, the aspect of legitimacy also needs to be considered. in the field of financial stability and macroprudential policies, a multitude of institutions are involved, such as parliaments, eu political institutions, national governments, and expert bodies at both the european and the national level. some of these actors derive their legitimacy from their independent expertise, others from their democratic accountability. what role each of them should play in achieving financial stability is intimately connected with the source of their legitimacy. this brings me back to the first point of my speech : financial stability might be an objective less well suited to independent expertise - based bodies than a price stability objective. even though the treaty does not give a definition of price stability, it is an objective that is quantifiable. the ecb governing council aims to maintain inflation rates below, but close to, 2 % over the medium term. putting a figure on price stability makes monetary policy more transparent and provides a clear and measurable yardstick against which european citizens can hold the ecb accountable. for financial stability no such clear yardstick exists. without clear objectives, however, it is much more difficult to measure the performance of independent, expertise - based institutions and hold them to account. 21 beyond that, the pursuit of financial stability often involves choices with stronger distributional implications. this is an additional argument in favour of the ultimate responsibility remaining in the political sphere. financial stability is thus a policy area where expert bodies and politically accountable institutions are called on to cooperate, with no one having exclusive responsibility. in this field, expert bodies with strong guarantees of independence, such as the ecb, might be better suited to “ contributing ” in an advisory capacity 5 / 7 bis central bankers'speeches while the “ ultimate responsibility ” is rather borne by institutions embedded in political accountability arrangements at the national level. otherwise political pressures to adopt one or the other stance in questions of financial stability might also threaten central bank independence.