fiscal union ; or, in the sense of a return to the maastricht framework, we strengthen the liability and independent responsibility of member states. taken to its logical conclusion, this also means that we cannot – and must not – rule out the possibility of sovereign defaults. as things now stand, however, it is not quite clear which of these two directions policymakers are leaning towards ; they seem to be performing a balancing act, with one foot in the maastricht world and the other in a fiscal union. in the long run, such a balancing act is painful and unhealthy. 4. 2 the role of central banks while policymakers vacillate, expectations of central banks increase. the eurosystem is being cast as the only actor on the european stage with any ability to take any meaningful action. accordingly, there are ever - increasing calls for the eurosystem to do even more to resolve the crisis. i consider this a bad idea, for two reasons. first, the eurosystem cannot resolve the crisis. the causes of the crisis are structural, and are to be found at the individual member state and the european level. in an interview with the german daily newspaper frankfurter allgemeine zeitung, the former imf chief economist did not mince his words : “ we have to fix the underlying structural problems. this will take time, but short - term policies just won ’ t work. that is an insult to people ’ s intelligence. ” i have already mentioned some of these problems. only policymakers can solve these problems ; central banks cannot. to that extent, the discussion surrounding an allegedly overvalued euro is just a red herring to divert from the real challenges. bis central bankers ’ speeches quite apart from the fact that the relevant indicators are not pointing to major overvaluation, even despite the euro ’ s recent appreciation, policymakers should adhere to the tried and tested assignment of roles. experience of politically motivated depreciations in the past has shown that these generally do not lead to any lasting gains in competitiveness. often, renewed depreciations are necessary. if more and more countries try to depress their own currency, this can culminate in competitive devaluation, which will only produce losers. the ecb ’ s first president, wim duisenberg, pointed out something in 1999 – in a speech held in paris, by the way – which still stands today : the eu

emerging markets in particular. domestically, between august 2007 and july 2008, food prices contributed on average 4, 1 percentage points to average cpix inflation of 9, 3 per cent. pressures from food and oil prices have also impacted on global inflation. despite a general downturn in most of the advanced economies, monetary policy in numerous countries has been tightened in recent months in response to heightened inflation pressures. since early 2008, the exchange rate has also begun to pose a threat to the inflation outlook. the exchange rate reacted to a number of developments including the widening deficit on the current account of the balance of payments, electricity supply constraints, bouts of global risk aversion and movements in the us dollar against other currencies. more recently, the rand exchange rate has appreciated somewhat from its earlier lows. the trend of wage settlements has also become an increasing risk to the inflation outlook. nominal wage settlements have been increasing over the past year, although they are still on average below the inflation rate, particularly once productivity changes are adjusted for. most other domestic determinants of inflation remained well contained and have either been neutral or helpful to inflation developments. after a long lag, household consumption expenditure showed a definite response to the tightened monetary policy stance, despite only a moderate slowdown in bank credit extension to households. demand for durable goods has been particularly responsive to higher nominal interest rates. asset price developments, in the form of lower equity prices and a subdued housing market, reduced the pressure on inflation emanating from wealth effects. output growth, which has measured around 5 per cent per annum during the past four years, showed signs of moderating and the economy appears to be growing somewhat below potential output growth. fiscal policy also remained supportive of monetary policy. in response to the impact of these developments on the inflation outlook, the monetary policy stance has been tightened progressively over the past year. the repurchase rate was increased by 50 basis points after each of four of the six mpc meetings held since the previous annual general meeting. since the tightening cycle began in june 2006, the repurchase rate has been increased by a cumulative 500 basis points. in january 2008 interest rates were kept on hold despite a mildly deteriorated inflation forecast. at that time, the risks to the outlook were more or less the same, but the mpc assessed that the extent of these risks had moderated somewhat. however, by the next meeting this assessment had changed in the light of new developments, including the risk posed to the outlook