mechanism that has been put in place. whenever – as a reaction to the brexit - vote – calls are made for greater mutualisation of debt, i think it ’ s rather like a ship that is listing : when the passengers – eager to help – rush to the lower side of the ship then, contrary to their good intentions, they are not helping to remedy the unfortunate situation at all but are, in fact, making it worse. the second way to restore the balance between liability and control, meanwhile, would be to strengthen the maastricht approach based on individual responsibility. this would leave economic and fiscal policy, as well as ultimate liability for public debt, in the hands of the individual member states. but how could such a decentralised approach work better in future than it has done in the past? although the rules were changed after the crisis, the european commission was granted more flexibility in interpreting them. and it has used this flexibility quite a few times so far – and always to interpret the rules very loosely. as a result, the binding force of the budgetary rules is weaker than ever before – as we can see, for instance, in the budgetary developments in france, spain, portugal and italy. one way of ensuring that the rules are binding would be to install a new and independent authority, a fiscal council. this institution would not be exposed to the same political conflicts of interest as the commission, which has to assess whether national budgets comply with the stability and growth pact and hammer out political compromises between the interests of the different member states. of course, the european council ultimately holds the key to the success of any budgetary control. its determination to enforce the rules and support the commission in a strict interpretation is all - important. “ debt is a two - edged sword. used wisely and in moderation, it clearly improves welfare. but, when it is used imprudently and in excess, the result can be disaster. ” this statement by former bis chief economist stephen cecchetti and his colleagues madhusudan mohanty and fabrizio zampolli is directed not only at private debt but at public debt as well. 10 they show that excessively high private and public debt is a risk not only to financial stability but also to economic growth. according to their estimations, in the euro area we are already in the danger zone – at least with regard to corporate debt, at 105 % of gdp, but also in terms

say an expectations - driven downward wage - price spiral. financial market participants seem to have a similar take on it : the probability, derived from inflation options, that the inflation rate will be negative in the next five years is now at its lowest point since the summer of 2011. personally, i have always deemed such a deflation scenario highly unlikely. third, some of the unconventional measures, which were taken in order to loosen the monetary policy stance, come with a different risk - reward calculus than the standard instruments of monetary policy. i am sure that it will come as no surprise that i am rather critical of government bond purchases. this is because, in a monetary union of sovereign member states with a single monetary policy and largely autonomous economic and fiscal policies, government bond purchases are not a monetary policy instrument like our policy rates, for instance. government bond purchases are increasingly blurring the line between monetary and fiscal policy, and government funding costs are depending to an ever greater extent directly on monetary policy decisions. euro - area central banks are now the largest creditors of their member states. all governments ultimately pay nearly the same interest rate on the debt in central banks ’ balance sheets, regardless of the country ’ s creditworthiness. what ’ s more : the larger the part of the debt that central banks withdraw from the market, the less markets will exert their disciplining forces, sanctioning unhealthy public finances with higher risk premiums. this is all the more worrisome as the low - interest - rate environment offers few incentives for governments to consolidate their budgets. and indeed, fiscal policy in the euro area has been loosened noticeably over the past few years. in contrast to what would be needed given the still high debt levels in many euro - area countries, governments ’ savings in interest payments aren ’ t being put towards the urgent goal of reducing debt, but instead are being spent to a significant extent. john f kennedy once said : “ the time to repair a roof is when the sun is shining. ” this is most certainly true. but if you don ’ t want to risk permanent damage to your house, you sometimes have no choice but to repair the roof when it ’ s raining. i fear the danger of finance ministers becoming more and more comfortable with the high levels of debt the longer these favourable financing conditions exist. this could lead to a situation in which fiscal policy takes the bait of a sustainability illusion. and, when the monetary policy reins have to be tightened due to increasing