there is a huge theoretical literature on central banks ’ solvency. i read the conclusions as follows. nearly all analysts agree that a central bank cannot go technically bankrupt as it bis central bankers ’ speeches can issue as much currency and reserves as needed to face its payments and commitments. indeed, a few central banks with great reputation have operated in the past with negative net equity for long periods of time. most economists would point, however, that unlimited issuance of base money would certainly endanger price stability in ordinary circumstances. so, while the existence of a central bank cannot be put into danger by its technical insolvency, its ability to fulfill its mandate might certainly be compromised. and so would its independence as the central bank would depend on the government to rebuild its capital. it is very important to understand that the eurosystem is fully protected against such a contingency. it has been created with a solid capital base and has kept strengthening it through retained profits and occasional recapitalizations. the eurosytem is unique, in this regard, amongst advanced economies. both its independence and ability to fulfill its mandate are guaranteed even in very adverse economic circumstances. while it should not lead to complacency and negligence, the existence of such buffers should alleviate any concerns about the potential risks that the expansion of the balance sheet may entail. finally, huge central banks ’ balance sheets may be seen as influencing the allocation of resources, or effecting implicit fiscal transfers, an issue of special sensitivity inside the euro area. to discuss this question, it is useful to refer to the famous musgrave classification of public policies between three purposes : allocation, distribution and stabilization. there is no doubt that monetary policy is only and exclusively concerned with stabilization – and a very focused part of it : price stability. no monetary policy action should be taken for any other purpose. so to the extent that “ unconventional ” tools are implemented, there should be no ambiguity as to their close link with the central bank ’ s mandate of price stability. i believe that has been the case in all major countries and certainly so in the eurozone. 4. how to mitigate unintended consequences? the truth is, however, that the real world does not always fit perfectly with the beauty of musgrave ’ s classification. some public policies may aim at several objectives. others may inadvertently, have unintended side effects. all public policies with no exception, health, energy, infrastructures, unwillingly affect

in this context, central banks have the clear duty of preventing the market from seizing up, with incalculable consequences for other financial players and more generally for the real economy. however, it should be borne in mind that the central banks ’ criteria for accepting assets as collateral for their refinancing operations are particularly restrictive and penalising, and comply with the traditional principles that i have just mentioned. in particular, the value of these securities must be at least equal to the amount lent and the accrued interest, after applying a haircut to take account of a possible decline in their market value during the repo. 4 ) why have the central banks responded differently as regards their monetary policy stance? as regards the central banks ’ response to the crisis, although they converged in their shortterm liquidity management methods, they nonetheless responded differently in terms of monetary policy. the underlying reasons for this divergence are both due to the nature of the shocks that the economies are facing and the mechanisms of their propagation to the real economy and to nominal variables. over the recent period, the industrialised economies have undergone three common shocks : rocketing real - estate prices at least in a number of countries, soaring commodity prices and finally the financial crisis triggered last summer. they have also experienced specific shocks : the real - estate crisis in the united states in a context of household overindebtedness, for example. in the latter case, the economic slowdown already underway since mid - 2006 and the expected consequences of the credit crisis on economic activity over the medium term has led the us monetary authorities to change their monetary policy stance. the very different situation in the euro area, where activity remained favourable, has led the ecb to keep its monetary policy stance unchanged in spite of the uncertainties generated by the financial crisis in a context also characterised by persistent inflationary tensions. 5 ) what lessons can we learn for the future? at the current juncture, financial turmoil is still affecting the markets. however, after more than nine months, i think it is already possible to draw first conclusions in three main areas : - first, the close co - operation between central banks on the one hand and between the supervisory authorities and central banks on the other hand seems, in my opinion, to be a determining factor for efficient crisis management. this point was indeed underscored during the recent work carried out by the financial stability forum. i must say in this respect that the french model of banking supervision, in which