this requirement, paired with common supervision, would prevent a situation in which governments continue to receive cheap credit despite budget difficulties, thereby plunging not just themselves but also the banks into even greater budgetary problems. the importance of setting the barriers higher in this respect is illustrated by current developments. it ’ s the done thing nowadays to criticise the close interrelationship between public finances and national banking systems. yet individual countries, despite being financially strapped, are still encouraging domestic banks to buy more and more of their own government ’ s bonds. this is a good example in that it clearly illustrates how short - term attempts to combat the crisis are not compatible with what is needed in the long term. 5. conclusion ladies and gentlemen, let me summarise. if properly structured, a banking union can be an important building block, or even a pillar, of stable monetary union. but is it also the key to solving the crisis? no, it is not, and to expect that would be to demand too much of it. the banking union is a future - oriented concept whose purpose should be to help prevent future risks or at least to help deal with them better. however, the present problems affecting the banking system are the result, above all, of past undesirable developments at the national level. the risks in the balance sheets arose on the watch of national authorities, and the respective member states have to deal with them. this is the only way to maintain a balance of liability and control. to communitise these legacy burdens through a banking union would run counter to the purpose the banking union was established for : it would then constitute a financial transfer. if policymakers believe that transfers of this kind are necessary, then they should also refer to them as such. in some countries, national fiscal policy could certainly bear the balance sheet legacy burdens ; in bis central bankers ’ speeches other cases, the rescue mechanisms would be at the ready to grant conditional financial assistance. what is more, the expectation that legacy problems can be passed on to the future banking union and, therefore, to the other member states threatens to protract the reform process in the banking system. this is because it could then be worthwhile for those affected to put off cleaning up banks ’ balance sheets until the banking union is in place. but since the banking union is a concept for the future and because it cannot, moreover, solve the current crisis, it should be introduced quickly but not over - hastily. from

it, experience had shown “ that a monetary framework which gives monetary policymakers a free hand usually deems them capable of more than they should be regarded as being capable of doing ”. as an alternative, eucken championed a strictly rules - bound monetary policy. and this is also being given serious consideration, especially by those who feel that central bank independence has to be associated with a narrow interpretation of its mandate. the question of whether rules - based policy is preferable to a central bank independence which, when it comes to the crunch, cannot be achieved anyway, was one of the topics at the latest annual meeting of the american economic association in san diego bis central bankers ’ speeches it must be recognised that the aim of a stronger rules - based policy framework is to prevent the primary objective of monetary stability from being watered down. central banks use these rules to tie their own hands in order to avoid being co - opted by fiscal policy. the price central banks have to pay for this, however, is that monetary policy also surrenders its flexibility. and it is precisely the decisive contribution made by central banks to stabilisation at the height of the crisis in the autumn and winter of 2008 which showed, in my opinion, just how important and useful such flexibility can be if it is firmly anchored in a clear commitment to the primary objective of price stability. however, the risks of such a policy are likewise becoming increasingly apparent. yet it is not only the benefits of independent central banks which are being questioned. on the heels of the crisis, changes to the monetary policy framework are being proposed which are designed to give monetary policy more policy options in times of crisis. quite some time ago, some – including imf chief economist olivier blanchard – suggested that central banks should set higher inflation targets. now the talk is of switching to nominal income targets. the common idea behind price - level targeting or nominal gdp targets is that, following a period of low inflation or weak growth, monetary policy tolerates higher inflation rates for a time before returning to the target path, thereby giving the economy an additional shot in the arm. i am sceptical of these proposals. a permanently higher inflation target creates permanently higher inflation costs ; although level targets avoid this by allowing higher inflation rates only temporarily, they entail problems of their own. moreover, changing the monetary policy framework during a crisis could dent confidence in central banks and raise suspicions of ulterior motives behind a change in strategy. in an article for the financial times, uk economist