spoke of earlier are ones that monetary policy normally faces and has to relate to. forecasts change over time and monetary policy has to be adjusted accordingly. we would have a completely different situation, however, if the euro crisis were to worsen dramatically, and there was substantial turmoil on the financial markets and economic activity suddenly dived. in these situations monetary policy needs to adjust to a crisis situation, and we are prepared for this. as a central bank, we need to be prepared to deal with many unexpected events. and we must make an assessment in our forecasts of the probability of these events occurring. a central assumption in our forecasts is that the financial market turbulence will gradually decline and that confidence will gradually improve in the corporate and household sectors. this does not mean that we believe that the road ahead will be straight and narrow. we have to assume that confidence in the countries ’ ability to resolve their problems will vary over time, and during the process different countries will come under focus. when we summarise the measures taken since the worst phase of the crisis last autumn, the european central bank ’ s two three - year loans to european banks were one measure that provided immediate relief. an acute liquidity crisis was avoided and the loans have also prevented a tighter credit crunch than would otherwise have been the case. however, they do not solve the long - term problems faced by many euro area countries, which was not really their aim, either. the loans have given many countries the breathing space to implement reforms, however, and it is important that they make use of this. at the same time the eu countries have agreed on a number of measures for stricter budget discipline. for example, reforms have been decided on that will strengthen the current fiscal policy regulations. these are measures that do not have an immediate effect, but which nevertheless manifest a political will that should create long - term confidence in a crisis that has largely political overtones. reinhart, carmen m. and kenneth s. rogoff, “ this time is different : eight centuries of financial folly ”, new jersey : princeton university press ( 2009 ). bis central bankers ’ speeches when we held our monetary policy meeting in april, greece had been granted a second support package by the eu and the imf, and had reached an agreement with private lenders on a debt write - down in return for promises of fiscal policy tightening. the euro area countries had also agreed to increase the capacity of their rescue funds, which was a step

regard, work to make sure that the public pays close attention to what the bank says. and such authority is not bestowed from the outside, but must be built up from within ourselves. it can be established only when we cultivate our abilities. our words and our will alone do not suffice. it also goes without saying that credibility must be underpinned by true ability. dear friends and colleagues, the crisis that the world economy is now undergoing is an abnormal situation. what is clear, however, is that overcoming it does not mean a return to the pre - crisis situation. the economy has a tendency to change dynamically, a characteristic that has been further reinforced by the modern trends of rapid globalization and informatization. there is a likelihood of risk and uncertainty growing greater the more dynamic the economy is, and at the same time spreading rapidly the more informatized it is. as the world moves closer to forming a single economy, we have learned the hard way that sectors have become much more inter - connected. we must redouble our efforts to adapt to changes, so as not to become estranged or left behind in this process of global transformation. efforts for policy adjustment between the united states and china to resolve the global imbalances, overcoming the challenges to euro system stability posed by the fiscal crises in some eurozone countries, the global wealth shift following the emergence of the g20 and the rapid expansion of asian economic powers, fixing the financial system so as to rein in economic risk and uncertainty, and redefining the roles of the international financial institutions : those are just a few of the core elements that will shape our drive to establish a new global economic framework. an appropriate solution to our country ’ s domestic problems can only be derived from the understanding of all these challenges. regrettably, however, we must bear in mind that there is no textbook solution to guide us in the future. we will be unable to find the correct prescription through approaches based upon our previous understandings of the economy. the current state of affairs requires that we respond wisely by thinking deeply and mustering all our wits to grasp the natures of the problems. international policy coordination may, on the one hand, currently be emphasized because the effects of particular policies adopted by any one country are limited in an open economy. this means that individual countries must cooperate with one another to maximize their policies ’ impacts. on the other hand, the current international policy cooperation may also have the positive result of reducing