. but quick and decisive action is now warranted in spain, and any further delay should be avoided, as the longer one waits, the more expensive it is likely to get. conditionality only applies to the banking sector, but this makes it all the more important that the spanish government itself pushes vigorously ahead with the reforms to tackle the structural problems of the spanish economy. it is definitely not the task of the eurosystem to substitute for national fiscal policies. this is true with regard to spain, and it is particularly true with regard to greece. greece must do bis central bankers ’ speeches everything in its power to strengthen its competitiveness. the country needs to stick to the agreed austerity and structural reform measures – no ifs, no buts. there is no basis for external aid without the agreed reform program. there can be no exception for greece in this regard, as this would inevitably undermine the balance of give - and - take in other program countries, too. the repeat elections will show whether the greek voters still support this way forward. if not, greece must be aware that it puts further aid at risk. the consequences would be severe, and most severe for greece itself. as the bundesbank has stressed time and again, the way europe deals with the crisis in greece will have far - reaching implications for the nature of european monetary union as a stability union. this is a deeply political question, and we have come to a point where policymakers can no longer avoid taking sides. attempting to dodge this decision and muddling through as before no longer is an option. rather, a further muddling through would also be an – implicit – response, and one of the least desirable ones, both from the perspective of a stability - oriented monetary policy and with regard to overcoming the crisis. a crucial question with regard to public finances in european monetary union is whether the right cure is to prescribe frontloaded consolidation for all euro - area countries. a considerable number of experts are vehemently opposed to this approach. paul krugman, for example, sees the euro area spiralling into disaster. and george soros is accusing many − including the bundesbank, with its emphasis on frontloaded consolidation − of destroying the euro. it will hardly come as a surprise to you that i do not share such views. rather, i suggest that dragging out fiscal adjustment would have major negative effects. of course, it is correct to say that, in normal times, consolidation dampens economic

of changes in key interest rates to money market rates, and along the money market yield curve to longer maturity rates and then to retail interest rates, has become more differentiated. in addition, the market for sovereign debt, which is essential for the functioning of the interest rate channel, has become severely disrupted in a number of euro area countries. this implies that monetary policy impulses have been transmitted differently in the various euro area countries. eurosystem market operations and financial integration the eurosystem has become increasingly active in its market interventions since the outbreak of the financial crisis. this is not unusual : history shows that financial crises tend to broaden the operational boundaries and range of responsibility of central banks, as these take on a larger share of financial intermediation in the economy. in doing so, central banks perform, in a centralised way, a function that decentralised private markets are incapable of or unwilling to provide, and consequently they take on greater risks in their balance sheets. the unconventional monetary policy measures taken by the eurosystem were motivated by the pressing need to avoid disruption to the monetary policy transmission mechanism. in response to the fragmentation of interbank markets, the ecb has adopted several measures to temporarily complement impaired intermediation in the interbank market by increasing intermediation via the central bank. these non - standard measures range from the fixed - rate full allotment tender procedure to foreign currency operations and, more recently, to a temporary broadening of the collateral pool. most notably, the ecb introduced 12 - month refinancing tenders and subsequently conducted two 36 - month operations at a time when the sovereign debt crisis was hampering euro area banks ’ access to market - based funding. the exceptionally long maturity of these operations provided banks with a longer horizon for their liquidity planning, mitigating the funding pressure they were experiencing around the turn of the year. in addition, it gave them the necessary breathing space to deleverage in an orderly manner over the medium term. the evidence we have confirms that this measure was critical in avoiding disorderly asset sales and a downscaling of longer - term lending. with hindsight, the eurosystem ’ s operational framework has proven to be effective and flexible during the crisis, adjusting well to difficult conditions. however, there is a limit to what market operations alone can achieve. they can neither address the underlying causes of the bis central bankers ’ speeches deterioration nor completely offset its effects. the stability and functionality of financial