risks associated with large sovereign debt. in stressed countries, the limited and costly availability of credit has further hampered hiring and investment, while in the other countries, borrowing conditions have been favourable, making the fault line even deeper. lenders in stressed countries as well as savers in all countries have suffered from the consequences of financial fragmentation. the ensuing flight to safety has led to soaring yields and lending rates in stressed countries. but the resulting excess demand for safe assets has also squeezed yields in core countries. therefore, financial fragmentation has negatively affected both borrowers in stressed peripheral countries and savers in the core euro area. furthermore, a key ingredient in conducting a single monetary policy for several countries is capital mobility. through capital mobility, real ex ante returns, expressed in terms of the same consumption units, are equalised across countries. when this condition holds, there is only one reference wicksellian natural rate against which we can assess the neutrality of our policy stance. when financial markets are fragmented, the efficient allocation of capital across countries is impaired and monetary policy ceases to have a single reference rate to pursue : the natural rate itself is fragmented. in this light, the ecb, acting within its mandate, has had to re - establish the allocative efficiency of financial markets. consequently, we have implemented a number of nonstandard monetary policy measures specifically designed to offset financial impairments. such measures have had their effects, mainly by boosting the ability of the financial intermediation sector to provide funds to households and firms. the revitalisation of local financial conditions has significantly reduced euro - area financial fragmentation, thus repairing the transmission channel of standard monetary policy. by lowering short - term interest rates and signalling, through forward guidance, our willingness to keep rates low for see m. brunnermeier and y. sannikov, “ the i theory of money ”, unpublished working paper, princeton university ( 2011 ). bis central bankers ’ speeches an extended period of time, we are aiming to reactivate the real economy and to avoid the deflationary pressures that can undermine the fragile recovery of the financial intermediaries. in this respect, it has been argued that reducing fragmentation can imply a redistribution of risk in times of crisis, and further, that it is the redistribution of risks that makes monetary policy effective. 10 for example, by relaxing collateral requirements for their lending programmes, central banks can insure against a tail event in which the borrower and the collateral fail to cover the

for your attention. references altissimo, f., m. ehrmann and f. smets ( 2006 ), “ inflation persistence in the euro area : a summary of the inflation persistence network evidence ”, national bank of belgium working paper no 95. anderton, r., f. di mauro and f. moneta ( 2004 ), “ understanding the impact of the external dimension of the euro area : trade, capital flows and other macroeconomic linkages, ” ecb occasional paper no 12. asdrubali, f., b. sorensen and o. yosha ( 1996 ), “ channels of interstate risk sharing : united states 1963 - 1990 ”, quarterly journal of economics, cxi, november : 1081 - 1110. baele, l., a. ferrando, p. hordahl, e. krylova and c. monnet ( 2004 ), “ measuring financial integration in the euro area ”, ecb occasional paper no 14, april. baldwin, r. ( 2006 ), “ the euro ’ s trade effects, ” ecb working paper series no 594. benalal, n., j. l. diaz del hoyo, b. pierluigi and n. vidalis ( 2006 ), “ output growth differentials across the euro area countries : some stylised facts ”, ecb occasional paper series no 45. bils, m. and p. klenow ( 2004 ), “ some evidence on the importance of sticky prices ”, journal of political economy 112, pp. 947 - 985. blanchard, o. and f. giavazzi ( 2003 ), “ macroeconomic effects of regulation and deregulation in goods and labor markets, ” quarterly journal of economics, august, 118 ( 3 ), pp. 879 - 907. see also recent speeches on the ecb website : trichet ( 2006b ) and trichet ( 2006c ). cappiello, l., p. hordahl, a. kadareja, and s. manganelli ( 2006 ), “ the impact of the euro on financial markets, ” ecb working paper no 598. de grauwe, p. and f. p. mongelli ( 2005 ), “ endogeneities of optimum currency areas : what brings countries sharing a single currency closer together? ”, ecb working paper