As a matter of fact, monetary policy alone cannot ensure price stability without the appropriate fiscal discipline at the overall EMU level. Indeed, for my part, I would mention three economic justifications for the Treaty provisions that gave rise to the Stability and Growth Pact: •  First, by co-ordinating the fiscal policies of the Member States of Monetary Union, the pact ensures a good policy mix within the Euro area. This is essential for monetary policy, to counterbalance the fact that Europe does not have a significant federal budget, just as it has no federal government. Close mutual surveillance and co-ordination of fiscal policies are the  BIS Review 11/2001  3  responsibility of the "Euro Group" and of the Ecofin Council. Adherence to the medium-term objective of achieving budgets that are "close to balance or in surplus" means that individual countries must first rely on themselves to withstand possible economic downturns which affect only their own economy, while ensuring a balanced policy mix throughout the euro zone. •  Second, the pact helps to prevent well-managed economies from having to bear an unjustified risk premium by setting up a penalty system for excessive deficits. •  And lastly, the stability and growth pact allows us to disprove the assertion that the euro area has no automatic stabilisers in the event of asymmetric shocks to a member economy.
Thomas Jordan: Low interest rates – blessing or curse? Summary of a speech by Mr Thomas Jordan, Member of the Governing Board of the Swiss National Bank, at the Delegiertenversammlung des HEV Schweiz, Säntis, 19 June 2009. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  Monetary policy uses low interest rates to try and stimulate demand as a way of combating the economic crisis. The property market is an important transmission channel in this regard, as low mortgage rates provide direct relief to home owners and tenants in the form of lower interest payments and rents. This provides households with greater room for manoeuvre in consumption and investment. This in turn boosts overall economic demand and economic growth. However, despite these direct positive effects, a low level of interest rates can also pose medium-term risks for the stability of the Swiss property market, and hence the financial system. The past has repeatedly shown that prolonged periods of low interest rates can lead to speculation on property markets, and to declining standards in mortgage lending. The challenge in today’s difficult environment is how to boost the economy through low interest rates without creating medium-term risks for the stability of the financial system and the property market. Responsible behaviour on the part of home owners, combined with bank discipline when granting loans, can contain these risks. Households should buy property only if they would also be able to afford it if interest rates increased.