of change are blowing... some people build walls and some people build windmills. ” well, the spanish have built quite a few windmills in recent years. in the first half of this year, the world ’ s attention was focused on greece to a much greater extent than on spain and its successful reform process. in light of the refusal of the greek government to accept the bail - out conditions, and due to acute financing needs, there was even speculation about whether the country would potentially have to leave the euro area or even the european union itself. this risk has since vanished, thanks to the adoption in august of a third assistance programme for greece, which is subject to strict conditions and temporarily resolved the country ’ s funding bottleneck. however, further payments are contingent on greece fulfilling these conditions. in addition, the central challenge facing greece lies in implementing structural reform measures for greater competitiveness as well as achieving sound government finances in the long term and establishing a functioning administration. only then will greece overcome its current period of weakness and embark on a path of growth. 5. 2 reforming the regulatory framework however, aside from the unsound developments in european periphery countries, the euro area ’ s regulatory framework also needs to be strengthened. the principle of aligning liability and control must once again be more rigorously enforced. this is because, over the course of combating the crisis, the element of joint liability has been increasingly expanded. this, in turn, has severely disrupted the balance between liability and control. the crisis countries were granted large - scale emergency loans by other member states and the european stabilisation mechanism. but the eurosystem also reacted, for example by not only lowering interest rates, but also by loosening the requirements for monetary policy collateral. in addition, the eurosystem acquired government bonds of crisis countries on the capital markets in order to ensure monetary policy had a more uniform impact. however, this propelled the eurosystem deep into uncharted and dangerous territory, blurring the boundary to prohibited monetary financing of governments. that being said, all parties are well aware that monetary policy is unable to resolve the crisis in the euro area, and is merely buying time for policy makers to implement the necessary measures. in order to permanently safeguard monetary union as a union for stability, it is important to bring liability and control back into a more balanced position. essentially, this can be done in two ways : either the euro area evolves into a genuine fiscal union, where fiscal

growth model that has acted as a political and social substitute for productivity - enhancing reforms. " hence, there are good economic arguments against higher inflation targets – and not the oftcited german angst when it comes to inflation. this is not to deny that, for germans, price stability is of particular importance. in this regard, it is also instructive to look back to germany one century ago. when the first world war was over, the german state was heavily indebted, and to finance the mounting debt service, the reichsbank printed more and more money. hyperinflation was the outcome. at the start of the first world war, the us dollar was worth 4. 20 marks. from then on, the german currency steadily depreciated, and in the summer of 1922, it went into free fall. we can be sure that most germans, unlike bavarian comedian karl valentin, did not see the funny side of this. when the dollar rose to 40 billion marks in autumn 1923, he quipped : " well, it certainly isn ’ t worth more than that. " seen from this perspective, valentin was in fact wrong. by mid - november 1923, when a new currency was introduced, the dollar stood at 4. 2 trillion marks. it is often argued that the travails of hyperinflation have been burnt into the collective memory of the german people, just as the experience of the great depression has become etched into the collective memory of americans. this, and the suppressed inflation during the second world war which led to a second currency reform in 1948, certainly go a long way towards explaining why germans appreciate monetary stability so much. o coibion, y gorodnichenko, j wieland ( 2012 ), the optimal inflation rate in new keynesian models : should central banks raise their inflation targets in light of the zero lower bound? review of economic studies 79, pp 1371 - 1406. bis central bankers ’ speeches perhaps a factor at least as important, though, is the positive experience germans had with the d - mark and its stability - oriented central bank. the young bundesbank was successful in gaining credibility as a guardian of the currency, even in difficult times. later on, during the inflation - ridden 1970s, germany kept inflation rates at comparatively modest levels. while the average rate of 5 % was quite high, other industrialised countries with the exception of switzerland had to cope with significantly higher inflation rates : for instance,