it was deemed necessary to help other member states. this is quite understandable in the short term. however, in the long run it is dangerous if countries with a debt problem can expect to receive help no matter what. this can raise the spectre of a dangerous spiral of more and more assistance and less and less confidence in the will of the affected countries to amend their ways. routes to a stable monetary union and such a loss of confidence is just what we are facing right now. the public, and also the markets, have lost faith – in politics, but also in the architecture of monetary union. the question is : how do we go about restoring confidence? let me begin by stating clearly what won ’ t work. confidence cannot be sustainably restored by putting more and more money on the table – for instance, by constantly ramping up the rescue funds. this strategy ultimately has its limits – be they political or financial. and the proposal of circumventing financial limits by switching on the printing presses is dangerous. of course the resources of a central bank are, in theory, nearly limitless. using them to finance sovereign debt, however, does not solve problems but instead creates new ones. such an approach would endanger the key foundation of a stable currency : the independence of a central bank that is dedicated to price stability. this would throw overboard the very things that need saving. and, as i said earlier : money can ’ t buy you confidence. the only thing that can be bought is time. with the efsf and the forthcoming esm, instruments to do just that have been created. however, this bought time must also be used to eliminate the root causes of the crisis. from this we can derive three main things that, in my opinion, need to be achieved. firstly, government budgets need to be put back in order. this goes for all euro - area countries, but is particularly incumbent on those countries which have time and again put off the necessary adjustments. efforts are apparently being made at the political level to step up pressure from other member states and the european commission. secondly, the countries affected by the crisis need to conduct structural reforms in order to become more competitive and to promote economic growth. such reforms are, naturally, difficult and painful. the irish case shows, however, that they are possible, and the german case shows that they pay off in the long run. and, thirdly, we need a stable architecture for monetary union. instead of constantly

bundesbank, in its current forecast for 2012, is expecting germany ’ s economy to grow by 0. 6 %. however, since the domestic factors for an upswing remain intact, we expect germany to turn onto a recovery path before the end of next year. supported by an expansionary monetary policy and a growing global economy, growth in 2013 should then return to 1. 8 %. this means that, in the next two years, the german economy ’ s capacity utilisation would therefore be normal. a probable average increase of 2. 5 % for this year is likely to be followed by a return to a much lower cost of living in the coming two years, which the bundesbank currently expects to be 1. 8 % in 2012 and 1. 5 % in 2013. bis central bankers ’ speeches this forecast, of course, is based on the assumption that the sovereign debt crisis will be gradually overcome and will not continue to escalate. this crisis is, and will remain, the single greatest risk to the financial system and the real economy. for this reason, i would now like to take a closer look at the sovereign debt crisis, focusing on three questions. first, what actually caused the crisis? second, how do we contain the crisis? third, where do we want to go with monetary union in the long run? the causes of the sovereign debt crisis unsound economic developments had apparently been brewing in several euro - area countries for many years. these include, in particular, excessive lending, asset price bubbles and a loss of competitiveness. these structural deficits were the breeding ground for the sovereign debt crisis. the actual weak link at the launch of monetary union, however, was the combination of a single monetary policy and decentralised fiscal policy. monetary policy is set at the european level – by the european central bank. by contrast, responsibility for fiscal policy rests with the individual member states, ie at national level. this severance of responsibilities was already at the centre of the debate when monetary union was being established. in a currency area with a decentralised fiscal policy, the member states have an increased incentive to borrow. any country that goes deeper into debt does not face the consequences by itself, as these are spread across the entire currency area – for example, through every country ’ s interest rates increasing. the founding fathers of monetary union therefore created a framework of rules to prevent, or at least correct, such unsound developments : the stability and