been only bank credit spreads that have widened. we know from past experience that variations in credit spreads can be driven by several different factors. one basic component of credit spreads is expected loss from default, while a second relates to risk premiums, of which there are two main types : a credit - risk premium and an illiquidity premium. 2 the credit - risk premium is related to the variability of underlying expected loss, and both this premium and the expected loss from default itself are affected by changes in macroeconomic activity. the illiquidity premium relates to a lack of general market liquidity. the credit and illiquidity premiums, like other risk premiums, can vary with any change in the risk appetite of investors. now, let me look specifically at the canadian situation. from early 2004 to mid - 2007, spreads on canadian corporate investment - grade and high - yield bonds were fairly stable and narrow relative to historical norms, as were those in most other industrialized countries. ( this can be seen in chart 1. ) but these spreads began to widen last summer as the crisis in the subprime - mortgage market started to take hold. some of this widening can be explained by rising concerns about canada's economic outlook due to the impact here of a possible recession in the united states. however, credit spreads – while not all at historic peaks – are now far wider than one would have predicted, based on past experience with economic downturns, and given the fact that canada's economy is in a healthier position than the u. s. economy. ( chart 2 shows spreads on investment - grade bonds in both canada and the united states. ) t. gravelle and a. garcia, " decomposing canadian corporate spreads : what are the drivers of the current widening? " financial system review ( ottawa : bank of canada, forthcoming, june 2008 ). one partial explanation for the current wide credit spreads – globally, not just in canada – relates to an unusual rise in factors not related to credit risk, such as the systemic drying up of market liquidity for debt issued by corporations, particularly for debt issued by investmentgrade companies like financial institutions. another partial explanation is that the current wide credit spreads are being driven by what appears to be excessive pessimism about expected default rates. we can see evidence of this in the very high cost of default protection in many markets, despite some improvement recently. 3 ( chart 3 shows the evolution of credit default spreads

that's also important to me for my work. germany has the largest population and the largest economy of all the eu member states. if you understand the language, you gain a profound understanding of how the people think. because of their language, the germans are more direct than the french or the english. for instance, simply saying " no " in french or english is always somewhat more complicated! but the most recent french criticism of the ecb's stability policy has been distinctly direct. in the presidential election campaign, both the conservative candidate nicolas sarkozy and the socialist segolene royal argued that the ecb should, for example, do more to support economic growth. i will only remind you that, by the will of the french democracy, the banque de france was made independent from french politics before the establishment of the ecb, with a primary mandate for price stability. to allow the central bank to become independent, both chambers of the french parliament changed the constitution of general de gaulle with a three - fifths majority. it rather looks like people in your home country have forgotten that. certainly not the people, who, according to surveys, are firm supporters of our independence. in any case, the maastricht treaty calls for the full independence of the central bank. under the treaty, governments are not even allowed to try to influence the ecb. nevertheless, would it not be better for the ecb to be a little more flexible and – like the federal reserve – react more strongly to the needs of the economy as a whole? our mandate is unambiguous. our primary objective is price stability. and price stability is a necessary condition for sustainable economic growth and job creation. the central banks of nearly all industrialised and emerging countries have policies based around the combating of inflation, and that is precisely what our fellow citizens want. the americans present things in a different way, but they too consider that price stability is a necessary condition for sustainable economic growth and job creation. most finance ministers of the euro area countries and the european commissioner for economic and monetary affairs joaquin almunia want regular discussions with the ecb. does that bother you? the treaty already arranges for precisely that. i myself invite jean - claude juncker and joaquin almunia twice a month to attend the meetings of the governing council at the ecb, and i am invited to attend the meetings of the eurogroup. as i have always said, we have to apply the whole treaty