significantly reduce the likelihood of either deflation or inflation scares. the firm anchoring of inflation expectations – throughout a time of crisis – meant that we could maintain the rate on our refinancing operations at positive levels without having the materialisation of a deflationary risk or of an inflationary threat. europe ’ s leaders should recognise that our economic model is in need of a considerable strengthening, especially our system of economic governance. in this respect, the governing council of the ecb considers that the proposals put forward by the commission and the european council task force do not yet represent the quantum leap in economic governance that is needed to be fully commensurate with the monetary union we have created. in particular, we need to strengthen the surveillance of fiscal policies to prevent excessive deficits and unsustainable public debt with three main elements : shorter deadlines under excessive deficit procedures ; quasi - automaticity in the application of sanctions, based on clearly defined criteria and with less discretion over outcomes ; and ambitious targets for the reduction of public debt towards the 60 % ceiling. as regards the surveillance of macroeconomic policies in the euro area we need a new system of mutual surveillance, concentrating firmly on countries experiencing sustained losses of competitiveness and large current account deficits as these countries face the greatest sustainability challenges. it should be determined by transparent and effective trigger mechanisms and specify clearly the sanctions in case of breach. and we need transparency. the assessments of macroeconomic imbalances and recommendations for corrective action should be given appropriate publicity at all stages of the surveillance process. the effectiveness of these enhancements to the governance framework will in part be determined by the quality and independence of the economic analysis that underpins them. without reliable statistical data we cannot be certain that the governance framework will provide the quantum leap forward that is necessary. it is therefore extremely important that the commission services charged with conducting macroeconomic and fiscal surveillance for the euro area be sufficiently independent, ideally supported by a body of “ wise persons ” providing external assessments. to be sure, the eu has already responded to one particular issue raised by the crisis, namely the need to co - ordinate macro - prudential oversight. you are all aware that the european council and the european parliament have recently finalised the decisions regarding the creation of the european systemic risk board or esrb, which i shall have the honour to chair. this new european body will be part of the new european system of financial supervision and its function will be to provide macro -

financing must be non - concessional. on the other hand, it would be very paradoxical for europeans to appear less united in times of difficulty than other continents. i have no wish to moralise. however, in other parts of the world – asia, for example – there were no discussions during the asian crisis. provided there is strong conditionality, all over the world friends can help each other. but i would also like to say to the germans : you yourselves have every interest in getting greece to adjust its economy and for it to be a stable partner in europe and in the euro area. question : is such scepticism with regard to financial assistance “ typically german ”? trichet : no, you also find it in other countries. question : what are the main reasons for the rising inflation in the euro area? trichet : the prices of oil and raw materials have risen worldwide. this is also pushing up the consumer price index in the euro area. our responsibility is to prevent price - setters and social partners from increasing other prices and wages in the medium term. we are there to prevent these second - round effects. over the medium term prices increases will go back to our definition of price stability : below 2 %, close to 2 %. question : when chancellor kohl paved for the way for the euro – not single - handedly, but with real determination – he saw it above all as a political, not an economic, decision. was this a key conceptual defect of the common currency? trichet : that is a very direct question. the fundamental idea of having european unity has always been to guarantee peace, prosperity and stability on our continent. from the outset this has included the idea of a common market. europeans ’ efforts to join closely together and create a single currency have deep roots in european politics. chancellor kohl, chancellor helmut schmidt before him, and, with them, many other political leaders across europe, pressed ahead with the project, knowing that it would combine peace and prosperity. monetary union is a resounding success. the scepticism about its capacity to maintain price stability has not been borne out at all. the problem is that not everyone has learnt their lessons from the global financial crisis. we have to re - affirm the visions of helmut schmidt and valery giscard d ’ estaing and of helmut kohl and francois mitterrand. bis central bankers ’ speeches question : the promise of taking the decisive step towards political