would only be able to borrow on the financial markets in future at very high rates of interest. this means that the country in question would have to reduce its debt to a sustainable level. yet, neither of these two safeguards worked. neither the discipline of the financial markets nor the rules were able to prevent individual countries running up excessive debt. investors on the financial markets tolerated the problems of individual countries for far too long. at the same time, policymakers stretched and sometimes ignored the rules of the stability and growth pact. and then, in 2008, came the global financial crisis. many countries had to rescue their banking systems and support economic activity. and that dramatically drove up their levels of sovereign debt. and, suddenly, the investors on the financial markets seemed to become aware of the problems which some countries were experiencing. now they saw the high level of sovereign debt, the lack of competitiveness and the risk of contagion effects between the individual countries. in short : they lost confidence in the crisis - hit countries. but this also meant that capital flows dried up – the capital flows that had previously covered up the problems. and that brings us to the statement by the eurogroup that i quoted when i began my speech. in order to safeguard financial stability in the monetary union as a whole, rescue packages were set up first for greece, then for ireland, portugal, for the spanish banking system and, finally, for cyprus. at the same time, central banks took various non - standard measures in order to stabilise the situation – i shall return to this point later. bis central bankers ’ speeches in an exceptional crisis, taking exceptional measures is undoubtedly the right thing to do. however, looking to the future, neither course can provide a permanent solution to the crisis. neither the rescue packages nor monetary policy can remedy the basic underlying problems that i have just mentioned. 3. looking forward : ways out of the sovereign debt crisis in order to achieve that, three things are necessary. first, government finances have to be put back in order ; second, competitiveness has to be improved ; third, the framework of monetary union has to be strengthened. let us look at these three necessities in more detail. 3. 1 budget consolidation and structural reforms many euro - area countries have very high levels of sovereign debt. in greece at the end of 2012, it was roughly one and a half times annual economic output. and in other member states, too, sovereign debt is well above annual economic output

a glance at the treaty would help to prevent false political ambition. already today, the dialogue between the eurogroup and the ecb is intensive. it cannot and must not be transformed into coordination including monetary policy. the young currency euro needs political influence least of all. the much - vaunted “ political visibility ” of the eurogroup exists. and yet, as i may recall at this juncture : the only spokesman for the euro is the president of the ecb. he is “ mr euro ”. any political attempt to involve the ecb ex ante in political decisions or to create a second “ mr euro ” ( namely, the chairman of the eurogroup ) would only lead to a blurring of responsibilities and thus to confusion. conclusion 1. right from the start, the ecb has demonstrated responsibility, reliability and consistency in its monetary policy. the ecb is close to its objective of safeguarding price stability, and keeping inflation below 2 % in the medium run. the inflation rate in the euro area is likely to drop back below 2 % in the second half of 2001. the ecb is pursuing its own strategy, geared to european conditions. its decisions are based on its own analyses. it is not sailing in the wake of the fed. up to the present, it has pursued a policy of “ steady as she goes ”. hectic responses by central banks transmit themselves to the markets and increase volatility. 2. the ecb must go on working to enhance its credibility and to strengthen the confidence of the markets and residents. to accomplish that, it is important to withstand political pressures and to defend the independence constitutionally enshrined in the ec treaty against political “ attempted embraces ”. in this respect, the ecb should be less modest. it should be less reluctant to issue public clarifications whenever concealed attacks on its independence are concerned. that is to say, the ecb must be prepared, to a greater extent than in the past, to carry out conflicts with the european parliament and the eurogroup in public. the increasing political demands being made on the ecb must be met with greater self - assurance. failing that, the young institution will run the risk of being forced on to the defensive in the event of a serious test. 3. politicians are not doing themselves any favours by making demands on the ecb going beyond the maastricht treaty. instead, the politicians should concentrate on the major challenges arising in their own fields