not a crisis of the euro as our common currency. since the start of the euro, inflation has been in line with the eurosystem ’ s definition of price stability, and the euro continues to be a strong currency – to some, it actually appears to be too strong. but it is generally accepted that the two central elements of the crisis are large macroeconomic imbalances stemming from diverging competitiveness levels, and unsustainable levels of public debt. the root causes of the crisis : macroeconomic imbalances and over - indebtedness no lasting solution to the crisis will be achieved unless these root causes are tackled. firewalls can help some countries to cope better with the effects of sudden shifts in investor sentiment, but, ultimately, all it can do is buy time. as the imf points out in its recent world bis central bankers ’ speeches economic outlook, firewalls by themselves cannot solve the difficult fiscal, competitiveness and growth issues that some countries are now facing. 2. 1 macroeconomic imbalances there is broad consensus that macroeconomic imbalances, which have built up in recent years, lie at the heart of the crisis. but the best way to correct these imbalances has been the subject of intense debate. exchange rate movements are usually an important channel through which unsustainable current account positions are corrected – deficit countries eventually see a devaluation, while surplus tend to revalue their currencies. the reactions that this triggers in imports, exports and corresponding capital flows then help to bring the current account back closer to balance. in a monetary union, however, this is obviously no longer an option. spain no longer has a peseta to devalue ; germany no longer has a deutsche mark to revalue. other things must therefore give instead : prices, wages, employment and output. the question now is which countries have to shoulder the adjustment burden. naturally, this is where opinions start to differ. the german position could be described as follows : the deficit countries must adjust. they must address their structural problems, reduce domestic demand, become more competitive and increase their exports. but this position has not gone uncontested. indeed, well - known commentators suggest that surplus countries should bear part of the adjustment burden in order to avoid deflation in deficit countries. they also point out that not all countries can act like germany, in other words, not all countries can run a current account surplus. hence,

– which are all the more severe, the longer the drug is administered. in the course of this crisis, the role of central banks has changed fundamentally. before the crisis, they provided scarce liquidity ; now they increasing serve as a regular source of funding for banks, and this threatens to replace or displace private investors. this may give rise to new financial instability if, as a result of the measures, banks and investors behave bis central bankers ’ speeches carelessly or embark on unsustainable business models, for instance, due to substantial carry trades. but emergency measures will not become the “ new normal ”. banks, investors and governments have to be fully aware of this, and central banks cannot tolerate that their well - intentioned emergency measures result in a delay in necessary adjustments in the financial sector or protracted consolidation and reform efforts among governments. conclusion ladies and gentlemen in my remarks, i have focused on necessary reforms in the euro area member states. this is not to say that changes to the institutional set - up of monetary union are not important. if member states want to retain autonomy with regard to fiscal policy, we need stricter rules to account for the incentives to accumulate debt that exist in a monetary union. the fiscal compact is a promising step forward. now, it is essential that the rules are applied rigorously. referring to the motto of this conference “ a german europe or a european germany ”, how should one label the recipe to overcome the crisis that i have just presented? well, it is, quite obviously, a european solution. and that is because it fully reflects and respects the letter as well as the spirit of the european treaty and therefore of the principles that i stressed at the beginning. the current crisis is most certainly a defining moment for monetary union. but the crisis and the measures taken to overcome it should not be allowed to redefine implicitly what monetary union actually is. this time we really cannot “ let this crisis go to waste ”, as the former white house chief of staff, rahm emanuel, put it. the crisis has laid bare structural flaws at many levels. it has questioned the way we adhered to the principles of emu, but did not invalidate the principles themselves, quite the contrary. i am confident that having stared into the abyss, europe will make the right choices and pave the way for a more prosperous and sustainable future – to the benefit of germany as well as of the euro area as a whole. bis central