this, at least, is what we can gather from a comparison with surveybased inflation expectations, which at last report fell only a very little or not at all and are running much closer to the definition of price stability. however, the risk of de - anchoring naturally increases, the longer economic agents observe an inflation rate which they perceive as being sustainably below the definition of price stability. the new forecast picture therefore certainly did present quite a monetary policy challenge and exposed a need for action to be taken. on this topic, there was agreement within the governing council of the ecb. but taken as a whole, i think the decisions went too far, and the comprehensive package of measures didn't win me over. my reservations concerning government bond purchases in the euro area are well known. similarly, the latest downturn in the outlook for prices and growth still leaves me unconvinced of the alleged need to use this instrument, one that i regard purely as an emergency instrument. for this will ultimately lead to a dangerous commingling of monetary and fiscal policy. even after taking note of the latest forecast revisions, i still see a very remote risk of a deflationary spiral. it is a fact, however, that the governing council of the ecb is striving for an inflation rate of below, but close to, 2 % in the medium term in order to fulfil its mandate of price stability. one reason why the central banks of the major currency areas generally aim for an inflation rate of just under 2 % is because slightly positive rates of price increase provide a certain safety margin to the lower bound on interest rates. as we now know, this bound is not exactly at zero, nor is it significantly below that level. if the inflation target is too low, a central bank's scope for stimulating the economy using conventional instruments can quickly be exhausted. naturally, the target ought not be too high, either, as we all know that inflation is costly. and not just when inflation rates hit the double digits. which is precisely the reason why many central banks across the world now have the mandate to safeguard price stability. maybe a comparison with a ship will help to illustrate the situation. a ship ought to have enough water below its keel at all times in order not to run aground. at the same time, too much water would prevent the ship from casting its anchor. it is important to emphasise that our target is a medium - run one. the medium run does

baking instructions, if you like. 2 basic ingredients turning to the basic ingredients, you won ’ t be surprised that, as a central banker, my considerations start from monetary policy geared to price stability. the european treaties provide us with an ideal framework for this : the eurosystem is equipped 1 / 7 bis central bankers'speeches with wide - ranging independence and has a clear mandate with price stability as its primary objective. and that has paid off. with an inflation rate of 1. 7 % on an average of the past 20 years, price developments have broadly been in line with our definition of price stability. the promise of a stable currency has thus been kept. but the success of monetary policy also depends on conditions which it cannot create on its own. in particular, it is dependent on a stable financial system. after the “ great inflation ” of the 1970s, advanced economies experienced a long period of remarkable economic stability that came to be known as the “ great moderation ". academics were still debating the specific role of monetary policy in bringing about this period of economic calm when the global financial crisis ended it. important lessons have been drawn from the crisis. the regulation of banks, insurers and financial markets has been strengthened. and, along with the reform of traditional supervision, macroprudential policy has been established as a new policy field. it can be deployed against regional and sectoral pockets of exuberance in case they are suspected of posing a systemic risk. as the sovereign debt crisis has painfully reminded us, such risks can also arise from unsound public finances. in a monetary union, the risk of excessive debt is greater than in countries which have their own currency. saying that, i do not so much mean the lack of the option to service government debt simply by printing money. for a central bank committed to price stability, that is a complete nonstarter anyway – whether in a monetary union or not. something else is more important : in a monetary union, the incentive to run up debt is greater because the negative consequences are smaller. for instance, interest rates may not rise as much in response to fiscal profligacy. in order to prevent such behaviour, the member states agreed on joint fiscal rules. but rules can only be of help where there is a will to observe them. in retrospect, ever since the euro was introduced, there has not been a single year in which all countries have kept their new borrowing below the ceiling of 3 % of gdp.