years of its existence? has confidence in the ecb ’ s ability to fulfil its mandate strengthened? of course, one measure would be to look at developments in the hicp. in fact, the average annual increase in the hicp over the first five years was slightly below 2 %, despite substantial adverse price shocks that occurred during that time. another measure of the ecb ’ s success can be derived from developments in long - term interest rates, reflecting market expectations for long - term inflation risks. for example, developments in french hicp - indexed bonds23 show that since the beginning of monetary union long - term inflation expectations have been anchored at levels consistent with the definition of price stability. this, i believe, can rightly be regarded as an indication of the high degree of credibility enjoyed by the ecb. communication between the ecb on the one hand and the financial markets and the general public on the other has - especially at the start of the single monetary policy - not always been without difficulties. however, it is clear that communication between the ecb and both the public and the financial markets has improved considerably over time. so, too, has the public ’ s understanding of the ecb ’ s strategy. for example, some commentators initially confused the reference value with a monetary target and assumed that the ecb was pursuing a monetary targeting strategy, while others implied that it was pursuing an inflation targeting strategy on the basis of an inflation forecast or even a mixture of both. such misinterpretations have since become rare. since the ecb ’ s inception the institutional framework for securing a stable european currency and lasting economic success has proved itself in practice. none of the fears mentioned above has materialised. however, for the benefits of a stable single currency to be reaped in full by all participating member states, a number of challenges have yet to be met. the ecb has emphasised time and again that the single monetary policy remains handicapped by the existence of considerable structural rigidities in the european union. as much has been left undone in recent years, it is now more crucial than ever to implement structural reforms in order to improve the growth potential of the euro area economies. this would also strengthen their capacity for responding appropriately to macroeconomic shocks. significant challenges also lie ahead in the area of fiscal policy. this is perhaps the area in which the need for sound macroeconomic policies and for structural reform are most closely related. in particular, primary expenditure needs to be restrained

the stability and growth pact. the crisis has revealed some of the shortcomings of national policies to comply with the requirements of an economic union. in particular, in a number of cases, national policies that are responsible for domestic public finances and for the competitiveness of member economies have not achieved their objectives. but the crisis has also revealed weaknesses in the peer surveillance process and in the implementation of the stability and growth pact. thus another major lesson of the crisis is the need to strengthen the institutional framework of the economic union. of course, the deterioration of public budgets has partly been due to a “ migration ” of risk from the financial sector to the public sector. public budgets have been called on to absorb the excessive risk that the financial industry had been creating during the booming years that led up to the crisis. partly, however, the deterioration of public budgets is also due to some short - sighted fiscal and economic decisions in the brighter times that preceded the crisis. before the crisis, weak public finances had combined in some countries with inattention to domestic competitiveness and a lack of long - term strategies to prepare national economies for competing successfully in the challenging – but rewarding – environment of the internal market. in greece, in particular, past fiscal irresponsibility and inattentiveness to domestic competitiveness made the national economy extraordinarily vulnerable to a sudden turn in confidence. as i have implied, after the crisis, the main players in the world economy will be judged by a new yardstick. private players will be held accountable to new and stricter standards of economic integrity and prudent management. and governments, the world over – and in europe in particular – will have to show self - discipline and trustworthiness to gain respect and preserve confidence. that is why financial reform will have to go hand in hand with fiscal reform. fiscal reform will reinforce confidence. in the current situation, we have to – and we do – stand firm on these principles. speculation on more and more elevated sovereign risk has been one factor behind spreads being driven to very high levels. this is why it was very important that the heads of state and government declared on 11 february 2010 that they were ready to “ take determined and coordinated action, if needed, to safeguard financial stability in the euro area as a whole ”. i said, on behalf of the ecb, that i approved of this important statement. in this respect let me stress the following : loans are not transfers, and loans come at a