after its inception, we can state that the eurosystem and its monetary policy have delivered upon their responsibilities. the policy measures by the ecb governing council have resulted in an inflation rate which is in line with our quantitative definition of price stability. on the fiscal side, the picture has been less positive, though. the fiscal stimulus measures in response to the financial crisis, large - scale government support programmes for ailing domestic banking systems, the working of automatic stabilizers and eroding tax bases in the face of weakening growth have put government budgets in the euro area countries under intense pressure. however, let me emphasise that for some euro area countries government budgets had already suffered from lax fiscal policy before the crisis. governments which entered the crisis with significant fiscal imbalances exited the recession with the highest deficit and debt - to - gdp ratios recorded in times of peace. the aggregate fiscal balance of the euro area increased from a close - to - balanced budget in 2007 to a deficit of more than 6 % of gdp in 2010, with a debt ratio rising from about 66 % in 2007 to more than 85 % in 2010 – and still increasing. this already drastic aggravation of public finances in the aggregate masks much more extreme developments for some individual countries. the sovereign debt crisis has shown that sound public finances are all the more important in a monetary union where a large number of independent fiscal policy - makers share the benefits of a single currency, gaining access to a large pool of savings and being immunized against exchange - rate risk. originally, it was expected that financial market pressures as well as treaty obligations would provide strong disciplining devices for member states to maintain sound public finances and to engage in structural reforms. bis central bankers ’ speeches firstly, financial markets were expected to discriminate between sovereign borrowers, leading to differentiated long - term bond yields across issuers with differing degrees of fiscal soundness. 2 however, as we have seen during several years before the crisis, markets did not come up with differentiated pricing, but rather with a fairly complacent pricing of risk across the board. in the wake of the financial crisis, these – one might say, “ falsely comforting ” – steady states have abruptly turned around. on the one hand, the government bond yield increases that we saw over the last years certainly contained episodes of overshooting, not fully reflecting economic fundamentals. on the other hand, the re - pricing served as an important wake - up call that strongly pushed for

more sound and resilient financial system. in this respect, recent steps like the basel iii framework mean some good progress in this direction. nonetheless, further bold policy actions need to be taken. this includes in particular the establishment of effective bank resolution schemes for systemically important financial institutions and an improved supervisory framework with new see e. g rudi dornbusch, 1997, “ fiscal aspects of monetary integration ”, american economic review papers and proceedings 87, pp. 221 – 223. bis central bankers ’ speeches macro - prudential tools. the establishment of the european systemic risk board and the three european supervisory authorities are only first steps. finally, while the reforms of economic and financial governance that i mentioned are vital, it is crucial that all these measures are complemented by a set of instruments that can directly address financial market tensions. in other words, we need firewalls that tackle the threats to financial stability and the risk of contagion – both between different sovereign debt markets, but also between sovereign debt markets and other financial market segments. therefore, the setting up of the european financial stability facility ( efsf ) and its successor, the european stability mechanism ( esm ), represent important additions to the architecture of emu. in this context, i very much welcome the decision by the heads of state or government to let the esm enter into force already by july 2012, that is, one year earlier than originally planned. monetary policy at the crisis : framework and recent measures having identified the need for reforming the framework for fiscal governance, the question arises whether the institutional framework governing euro area monetary policy would also benefit from some changes or finetunings. my view here is that our framework, with the important institutional elements – that i have mentioned earlier – has in fact served us rather well in conducting monetary policy both in turbulent and more tranquile times. nevertheless, recently some calls have been made on euro area monetary policy to adapt its set of rules and to concede to the needs of other policy areas. before i come back to this, let me take a step back and look at the experience of other central banks, which have – compared to our own relatively young institution – a longer history. in the period after the second world war in the united states, the federal reserve had to completely accommodate the debt management policies of the treasury. with inflationary pressures rising, the conflict between the federal reserve and the treasury escalated and ended with the fed - treasury accord of february