mentioning the role of asset prices in the conduct of monetary policy. a long series of booms and busts over the past four decades have demonstrated that asset price developments can pose serious threats to macroeconomic and price stability, and that, therefore, central banks cannot simply neglect them. in this respect, it appears that a comprehensive monetary policy strategy, which also gives prominence to money and credit developments, might be better able to “ lean against the wind ” of financial exuberance. central banks should be equipped with a broad - based analytical framework for monitoring and analysing in detail such developments. at the ecb, this approach is underpinned by the monetary analysis, the second pillar of our monetary policy strategy. fiscal policy for many commentators, the financial crisis has underlined the need for a return of the state in managing macroeconomic developments. of course, together with central bank liquidity support, discretionary government intervention has been key in forestalling a repeat of a 1930s - style depression. however, we are observing a drift in public liabilities that will prove hard to correct with the usual stabilisers. in some countries, this drift actually has nothing to do with the financial crisis. it is rooted in the policy hyper - activism that was already in place before the crisis. and this despite the obvious dangers of an overreactive fiscal stance, which cannot be decided and implemented without long lags. here, fiscal rules, such as the stability and growth pact in the european union can help. if given enough authority, rules can induce symmetric behaviour. it remains to be seen how the discretionary fiscal measures adopted in response to the crisis can be wound down and reversed to support fiscal sustainability in the longer run. since the ecb has started to gradually phase out its extraordinary liquidity support measures, fiscal authorities should also start to withdraw stimulus to safeguard public solvency over the medium term. to support this, we have the right mechanisms in place in europe. governments will have to comply with and, as experience shows, even re - enforce the fiscal rules enshrined in the stability and growth pact. concluding remarks : some lessons from this quick overview, i draw two lessons for monetary policy. the first lesson to be learned is that central banks need to broaden – not restrict – their overview of the economy. monetary data are critical in warning against risks that are slow to appear in inflation forecasts. monetary analysis at the ecb consistently sent early signals that risk was broadly under

issue debt to finance a loan or an asset purchase, there is an immediate impact on government debt in the official statistics. but no impact on the deficit will be recorded unless or until there is clear evidence that the interest on the loan or the price paid for the asset does not reflect market conditions. in cases where a privately owned special entity is established to provide loans or purchase assets, there may be no immediate impact on the government accounts, even if the debt issued by this entity is backed by a government guarantee. only if and when this guarantee is called will the corresponding amount be recorded as government spending. at the current juncture, it is impossible to assess the amount of the guarantees that will be called or what the final scale of the losses will be. as eurostat put it, the cost of the public support to banks is a large cloud on the horizon, but at the moment we do not know how much it is going to rain! the fiscal exit strategy faced with the prospect of large deficits in the coming years and uncertainty regarding the final costs of bank rescue packages, the priority for fiscal policy must be to set out a clear and credible plan for restoring order to the public finances over the medium term. just as central banks are mulling their exit strategy from non - standard monetary policy measures, governments need to develop their exit strategy too. * * * in this respect, the first hurdle to overcome is to be honest and transparent about the scale of the problem. as i already mentioned, much of the support given by governments to the banking sector will not be reflected, for the time being, in the government accounts. but this does not mean it can be overlooked. eurostat has announced that it intends to establish a supplementary reporting table to collect data on guarantees, liquidity support measures, and the operations of special purpose entities relating to the financial crisis. this reporting must be taken seriously. public authorities cannot call on banks to be more transparent about the scale of their liabilities, if they exploit statistical conventions themselves to keep debt off of their balance sheets. beyond this, there is a risk that the increase in government borrowing during the crisis is viewed as being purely the consequence of the operation of the automatic stabilisers and fiscal stimulus packages. cyclical effects should cancel out over time. stimulus measures are supposed to be largely temporary. so once the crisis is over and the stimulus measures unwind, we should be more or less back where we started. this is wishful thinking. the sharp