##nk the role and set - up of monetary policy after the crisis. where are we headed? and how do we get there? i see three main elements of monetary policy after the crisis. for the monetary policy framework, the crisis has shown that the monetary analysis can play an important role in signaling financial imbalances and vulnerabilities. it is an important input in a strategy of “ leaning against the wind ”. for the operational framework for monetary policy, it is crucial that after the crisis we will return to the principles that guided the framework before the crisis. in particular, we need to return to a clear and transparent separation principle between monetary policy stance, on the one hand, and liquidity management, on the other hand. finally, there is a clear need for a sustainable institutional framework for the euro area. this framework will need to center on budgetary discipline and sound economic governance. in the long - run, as a closing piece, i see joint financing through euro bonds as the only sustainable solution to self - fulfilling liquidity / solvency problems in individual member states and domino - effects / contagion between euro area member states. how do we get there? in a transition to a post - crisis monetary policy, it is important to exit gradually from unconventional and conventional instruments that are being used during the crisis. in this phase, communication will play a very important role. and fiscal and prudential policies need to play a primary role in addressing problems that originate in the fiscal and financial spheres. let me conclude. as stan fischer said in a recent tinbergen lecture in utrecht, the big question monetary authorities face in these times is – what do you do if policymakers that should tackle problems do not act sufficiently? my answer is that monetary policy cannot solve the crisis, since it is rooted in fiscal policy and the vulnerability of the banking system. all monetary policy can do is to buy time, at the cost of stretching its mandate to the limit, if not beyond. bis central bankers ’ speeches

policy decisions through liquidity management. with these principles in mind, let me turn to the monetary policy responses to the crisis. at a very general level, the ecb used conventional tools – an aggressive easing of the policy rate – to counter deflationary pressures and unconventional tools, which aimed at restoring a well - functioning transmission mechanism. these policies were pursued in four phases. 1. between july 2007 and the fall of 2008, the ecb responded to disruption in interbank markets by expanding its liquidity provision to commercial banks. 2. between the fall of 2008 and end - 2009, as the financial crisis escalated and turned from a liquidity crisis into a solvency crisis, the ecb lowered its policy rate in quick steps to an unprecedentedly low level. in addition, it also employed a range of unconventional tools – such as fixed - rate full - allotment at the weekly tenders, longer - term refinancing operations. bis central bankers ’ speeches 3. the third phase extends from end - 2009 to mid - 2011. as the macroeconomy rebounded and financial market conditions improved in late 2009, the ecb started a gradual exit from its unconventional measures. when the sovereign crisis hit euro area bond markets in the early months of 2010, the eurosystem responded to an increasingly dysfunctional monetary transmission mechanism, by activating a special markets program ( smp ). 4. when the sovereign crisis intensified in august 2011, the gradual exit from unconventional was stalled. also, additional unconventional measures were taken to support the monetary transmission mechanism. these policy responses went a long way in supporting the ecb ’ s goal of price stability, and to address problems in the monetary transmission mechanism. at the same time, these measures – and the smp in particular – entailed a number of risks. as i mentioned in earlier speeches and interviews, i see four main risks. first, these measures tended to reduce pressure that markets exerted on governments to pursue fiscal discipline. second, treading further along the path of interventions in government bond markets implies increasing risks of monetary financing of fiscal debt. third, purchases of assets in markets under stress implies a financial risk for the eurosystem ’ s balance sheet, which may eventually lead to fiscal transfers. fourth, there is a risk that the eurosystem will enter political waters, which will make the conduct of monetary policy more difficult. with our experience during the crisis and the connected risks in mind, we need to rethi