thereby provided the banking system with unlimited liquidity support, at fixed rates, with maturities of up to six months. we have just decided to maintain this procedure for as long as needed, and in any case beyond the end of 2009. as a result of all of these measures, most of which are highly non - standard, banks have continued to have broad access to euro liquidity. structural issues report on housing finance in the euro area let me now turn to the second topic, namely housing finance, which is covered in this year ’ s ecb structural issues report. as in previous years, i will present to you the general thrust of our report, which will be published later today. the report analyses trends and differences in the characteristics of housing loans, in the funding of bank loans, and in the spread between mortgage interest rates and the funding costs of banks. it also compares housing finance in the euro area, the united kingdom and the united states. generally, euro area banks are significantly stricter in terms of non - interest conditions on loans, partly explaining the significantly smaller sub - prime market here. on the funding side, relatively stable bank deposits continue to be the main source of funding for bank loans in the euro area, with much less emphasis on the “ originate - to - distribute ” function. these observations support the conclusion that housing finance in the euro area should be more resilient to shocks. housing finance has an impact on the transmission of monetary policy to the economy. two observations deserve particular attention. on the one hand, a higher degree of competition among mortgage suppliers leads to a strengthening of that transmission. on the other hand, the introduction of greater flexibility in mortgage contracts via the temporary suspension of payment or maturity extensions would result in interest rate changes having a smaller immediate impact on the economy. finally, it is clear that we have to assume a greater amount of retention on the part of banks, both as regards the amount and the characteristics of loans granted to households and as regards their sources of funding. implications of the current crisis for euro area enlargement let me now turn to the third topic, which relates to the implications of the current crisis for euro area enlargement. the global economic situation has deteriorated significantly since september 2008 as a result of the intensification of the financial crisis. some central and eastern european countries have also been hit hard, thus highlighting previous vulnerabilities. these weaknesses relate in particular to domestic and external imbalances, unsound fiscal

framework should provide appropriate guidance about projected outcomes - ceteris paribus, of course. i focus on two ways in which fiscal policy choices could affect monetary policy. first, fiscal policy choices will affect the interest rate consistent with full employment and price stability. second, a gradual reduction and ultimate retirement of the federal government debt would require changes in the way monetary policy is implemented. the analytics of the policy mix the policy mix is a very useful device for understanding the interaction of monetary and fiscal policies. there are infinite combinations of monetary and fiscal policies that yield the same level of aggregate demand. the different combinations result in different outcomes for the level of real interest rates, the composition of output, and the current account balance. the composition of output at a given time has implications for the level of output over time. so the policy mix has quite important implications for macroeconomic performance. the policy mix can be easily represented in a simple is - lm diagram, shown in figure 1 ( 6 kb ). this illustrates a simple model of macroeconomic general equilibrium. the is curve shows the combinations of interest rate ( r ) and output ( y ) consistent with equilibrium in the output market. the lm curve shows the combinations of interest rate and output consistent with equilibrium in the market for money. the intersection of the curve shows the unique combination of the interest rate and output consistent with equilibrium in all markets simultaneously. let ’ s start from a simple case in which the level of capacity is given at a moment in time and the intersection of is and lm curves determines the prevailing level of aggregate demand. as long as this intersection occurs at or to the left of the capacity limit, potential output ( y * ), it determines the level of output, at least in the short run. i will assume that the intersection takes place at potential output, so that the outcome is consistent with the broad objectives of monetary policy : price stability and full employment. evaluating alternative fiscal policies at an unchanged level of output - and specifically at potential output - also allows us to abstract from cyclical changes in the deficit and thereby to focus exclusively on changes in the structural budget balance. the position of the lm curve is determined in part by the stance of monetary policy. i have drawn the conventional upward sloping lm curve predicated on a constant money stock. in this case, we could view the level of the money stock as being adjusted by open market operations to be consistent with the federal reserve ’ s target for the interest rate.