Central banks can best contribute to financial stability, including containing contagion risks, by providing a firm anchor for inflation expectations as well as by supplying the financial system with the necessary liquidity. Monetary policy, however, cannot substitute for the need for governments and private agents to deliver on their own responsibilities.
Second, euro area governments must urgently bring forward necessary structural reforms and engage in sustainable fiscal policies within a strengthened euro area governance framework. A number of steps have been undertaken recently to strengthen economic governance. Fiscal policies should, however, be more grounded in a rules-based framework with clear medium term objectives, similar to monetary policy.