even when these headwinds fully dissipate. the next question i wish to consider is how the fed will likely manage its balance sheet as the taper process is completed and lift - off eventually occurs. unlike previous normalizations of monetary policy, which only involved the level of short - term rates, this prospective tightening cycle also involves considerations with respect to the size and composition of our balance sheet. the committee stated in its june 2011 exit principles that changes in shortterm rates will be the primary means for adjusting monetary policy post - liftoff, not discretionary shifts in the balance sheet. in other words, the balance sheet will be set on automatic pilot. i believe this approach still very much applies. however, the language in the june 2011 exit principles concerning agency mortgage - backed securities ( mbs ) sales no longer applies. as chairman bernanke noted in the press conference following the june 2013 fomc meeting : “ while participants continue to think that in the long run the federal reserve ’ s portfolio should consist predominantly of treasury securities, a strong majority now expects that the committee will not sell agency mortgagebacked securities during the process of normalizing monetary policy. ” the balance sheet would shrink post - lift - off as treasury securities matured and mortgages were prepaid, but outright agency mbs sales are no longer contemplated during the process of monetary policy normalization. also, i think that the language in the june 2011 exit principles with respect to reinvestment needs to be revisited. the exit principles state : “ to begin the process of policy normalization, the committee will likely first cease reinvesting some or all payments of principal on the securities holdings in the soma. ” there are two considerations that suggest to me that ending the reinvestments prior to lift - off may not be the best strategy. first, such a decision might complicate our communications regarding the process of normalization. ending reinvestments as an initial step risks inadvertently bringing forward any tightening of financial conditions as this might foreshadow the impending lift - off date for rates in a manner inconsistent with the committee ’ s intention. second, when conditions permit, it would be desirable to get off the zero lower bound in order to regain some monetary policy flexibility. this goal would argue for lift - off occurring first followed by the end of reinvestment, rather than vice versa. delaying the end of reinvestment puts the emphasis where it needs to be – getting off the zero

1980. the werner report proposed the inception of an independent institution for fiscal monitoring and coordination. this idea clearly reflected that a single monetary policy would need support from sound public finances. more concretely, the werner report called for closer economic policy coordination with an agreed framework for national budgetary policies. at the institutional level, it suggested a “ centre of decision for economic policy ”. this coordination body for economic policies should have been established alongside the european system of central banks, i. e. the monetary authority. both institutions were to be independent from the national governments, being politically accountable only to a european parliament. this independent economic authority should have influenced the national budgets with a focus on the level and the direction of the balances as well as the financing of deficits and the use of surpluses, respectively. in the next major attempt to design a single european currency, the delors report in 1989, the insight that sound fiscal policies would be necessary to safeguard the credibility of the common money was still vivid. that blueprint named after the president of the european commission at that time, jacques delors, stated that “ an economic and monetary union could only operate on the basis of mutually consistent and sound behaviour by governments and other economic agents in all member countries. ( … ) uncoordinated and divergent national budgetary policies would undermine monetary stability and generate imbalances in the real and financial sectors of the community. ” almost exactly 20 years ago, the maastricht treaty was drafted by the european council on 9 / 10 december 1991 in the dutch city of maastricht. it founded the european union and led to the creation of the single european currency and to provide a framework of lose policy coordination. bis central bankers ’ speeches at the very core of that framework the no - bail - out clause and the stability and growth pact ( sgp ) were installed. the first should have excluded free rider incentives and the second should have aligned national fiscal policies to prevent negative spill over effects to the currency union as a whole. the sgp was a compromise of quantifying fiscal soundness without interfering with the budgetary and fiscal policies of sovereign states. it aimed to maintain fiscal discipline within emu. member states adopting the euro had to meet the maastricht convergence criteria, and the sgp should make sure that they continue to observe them. the compromise was also characterized by the strong belief that governments would be reactive to market discipline. however there was a lack of political will to