policy. and thanks to this credibility, inflation expectations are extremely well - anchored for the next five and ten years in line with our definition of price stability. ” would you say yourself that the non - standard measure of buying government bonds on the secondary market – designed to support euro area countries in trouble – did not work and so has to be scrapped very soon, as one of your colleagues says? no! this is not the position of the governing council, with an overwhelming majority. this non - standard measure, like all other such measures, was designed to help restore a more normal functioning of our monetary policy transmission mechanism. and we are withdrawing all the liquidity, euro for euro, that is supplied through this programme. as regards euro area countries in trouble, what is the position of the ecb on what happens when, three years from its inception, the efsf expires? can a permanent resolution mechanism be put in its place? we have said clearly that considerably strengthened fiscal and competitiveness surveillance, as we are calling for, is the appropriate instrument with which to minimise the risk of recurrent fiscal crisis. however, if the risk of debt crisis were to become relevant despite the previous measures, a crisis management framework could be useful. it would have to rely upon very strong policy conditionality and reinforce incentives for pre - emptive fiscal and macroeconomic adjustment. some economists think that a too long period of low interest rates can endanger financial stability. it seems that new financial bubbles are growing in the emerging markets. some politicians, such as italy ’ s treasury minister giulio tremonti, say speculation is rife again, as strong as ever. the remarks of giulio tremonti are always stimulating. as regards the ecb, we have demonstrated in the past that we are very keen not to embark on policies that would foster volatility and financial instability. the euro area countries can count on the ecb to deliver price stability and to solidly anchor inflation expectations, a necessary condition for financial stability, even if it is not a sufficient condition. i am sure this preoccupation is shared by all the central banks in the world. it is striking to see the extent to which confidence in central banks and in their capacity to deliver stability is important in our democracies. central banks are, by construction, devoted to stability, they are medium and long term - oriented and they are independent. i think these are some of the reasons why the new systemic

jurgen stark : economic prospects and the role of monetary policy in the current situation speech by mr jurgen stark, member of the executive board of the european central bank, at the 5. deutsch - luxemburgische wirtschaftskonferenz, luxembourg, 9 march 2009. * * * ladies and gentlemen, since the second half of 2008, we have witnessed the deepest economic downturn since world war ii and the fastest deceleration in inflation since the launch of the euro. we have confronted this situation with unprecedented decisions. unprecedented has been the magnitude and size of interest rate cuts. since october 2008, we have reduced key ecb interest rates by 275 basis points. unprecedented has been the scope of liquidity support we offer to the financial system. but central banks alone are not in a position to resolve the current financial crisis. policy makers need to prevent a further deterioration in economic and financial conditions. to this end, resolute action is needed to restructure, recapitalise and consolidate the banking system. to be realistic, the year 2009 will be a very difficult year. 2009 will be the year of adjustments in the balance sheets of banks, firms and private households. these adjustments should lay the foundations for economic conditions to eventually stabilise and improve. let me now elaborate in greater detail on where we stand in terms of economic and monetary developments in the euro area and how this has affected the conduct of monetary policy. i will subsequently talk about how we have adjusted our refinancing operations in response to the financial crisis. finally, i will briefly discuss challenges in the resolution of the crisis. economic prospects a. global economic situation let me start with the economic outlook. the world economy is currently undergoing its deepest downturn since the second world war. the crisis started in summer 2007, as losses in the us sub - prime mortgage market, a relatively small segment of the us housing markets, triggered the ongoing financial turmoil. however, its impact on the global economy remained relatively limited until the summer of 2008. however, after the collapse of lehman brothers last september, the tensions in global financial markets escalated to a full - blown financial crisis and thereafter turned into a global economic crisis. the severe global economic downturn has now become more synchronised. the collapse in global trade has amplified the adverse impact from the financial turmoil and caused emerging market prospects to deteriorate drastically. in advanced economies, falling house prices, tumbling financial markets, collapsed household and business