hands. this set - up created vulnerabilities. it gave rise to a deficit bias, allowing the costs of fiscal imprudence to be partially shifted to other countries. if the fiscal situation in one country is unsustainable, this implies repercussions for the monetary union as a whole. moreover, abandoning the national currency in favour of a single currency has two major implications. first, member states cannot regain lost price competitiveness by depreciating their currency against their trading partners ’ currencies and internal devaluation as a substitute is much more painful. and second, each member state issues debt in a currency not of its own making. fiscal discipline is therefore of the essence and even more important than in a country that has its own national currency. this applies to an even greater extent, as there are no explicit fiscal transfers among governments. however, although fiscal transfers were deliberately ruled out, the central banks ’ balance sheets can serve as a conduit for shifting risks among national taxpayers. this undermines both the countries ’ individual fiscal responsibility and the central banks ’ independence. the founding fathers of the euro clearly foresaw the risk of unsustainable public finances for a stability - oriented monetary policy. therefore, precautions in terms of fiscal rules were put into place to safeguard sound public finances. they took the form of the no bail - out clause, the stability and growth pact and the prohibition of monetary financing of government deficits for the reasons i have just mentioned. as it turned out, however, these precautions were not sufficient to prevent the crisis. the introduction of the euro and the associated disappearance of exchange rate risks led to strong capital flows to countries which previously had high interest rates. unfortunately, the capital inflows were not always put to productive use ; banks and capital markets failed in many cases to allocate the money efficiently. instead of financing productive investment, they shifted money into booming real estate sectors, for example. and the governments of some member states missed the opportunity bis central bankers ’ speeches of lower interest rates to consolidate public finances. instead they enjoyed a more relaxed budget restriction. capital inflows also enabled higher wages while, at the same time, productivity growth was weak. this resulted in rising unit labour costs and so undermined price competitiveness. economies became less competitive on export markets, leading to large and persistent current account deficits. they suffered from a sudden halt in external funding during the financial crisis when lenders reined in

capacity utilisation, an increase in per capita employee compensation of 2. 9 % is expected. but it was not primarily my assessment of the need for action which made me sceptical about qe, but more the combination of the need and the instrument at hand – government bond purchases. i do not expect qe to have no impact on inflation. but the effects are difficult to gauge, and it can be assumed that they will be weaker than in the us, for example, because interest rates in the euro area today are already much lower than in the us, especially when the first qe programme was launched. moreover, the funding of us companies is much more capital market - based than that of european businesses, and wealth effects are generally smaller, too. and government bond purchases involve the fundamental risk of mutualising sovereign liability risks via the central bank ’ s balance sheet. while this risk can be more or less ignored for countries with their own currency, it can be a major problem for a monetary union – especially so for one which, like the european monetary union, is not a fiscal union. at the end of the day, it could introduce common liability through the back door. and in this regard, i am a guy who prefers to use the front door. that is to say that it ’ s up to elected governments and parliaments to make such far - reaching decisions. i do acknowledge that the adopted sovereign bond purchase programme partly takes into account some of the concerns related to earlier programmes : only a small part of the programme is subject to risk sharing among the central banks of the eurosystem. additionally, the governing council decided on limits for the eurosystem ’ s purchases of individual bond issues and for its overall purchases of debt of one single country. this is designed to ensure that governments continue to rely on the capital markets for their funding. despite all these measures, which obviously make the qe programme less problematic than earlier sovereign bond purchase programmes which aimed to reduce the risk premia of individual countries, one important risk nonetheless remains : the national central banks will become the most important creditors to their governments, which might ultimately put the independence of monetary policy at risk. the purchases will make life easier for finance ministers. they will not be amused when the governing council considers exiting its ultra - loose monetary policy. and they might be tempted to put political pressure on the eurosystem. in the european monetary union, however, fiscal discipline is absolutely essential because the set - up of