Financial crisis management: the role and instruments of central bank policy  Let me start by making two general points concerning the role of central banks in safeguarding financial stability and the instruments that can be employed to this end. The first point is that the role and actions of central banks, in promoting financial stability must be compatible with the policy framework guiding the achievement of the primary objective of price stability. Financial stability and price stability are, in general, complementary goals and conditions that are mutually reinforcing. But there can be occasions when the constellation of shocks affecting the economy and the dynamics of market processes may pose challenges or policy trade-offs for central banks aiming at the preservation of price and the safeguarding of financial stability. The second point concerns the available policy instruments and the actual measures taken by central banks when dealing with the financial crisis: The tools include (i) liquidity provision and management; (ii) the key monetary policy interest rates; and (iii) credit support measures aimed at enhancing the functioning of credit markets. The use of these policy instruments, and the timing of their use, depend on the potential relationship between (i) the prospects for price stability and (ii) the size of financial market stresses and associated systemic risks. It also depends upon the economy’s financial structure. For example, the extent to which the financing of the economy relies on the banking system and on the capital market has implications for the relative reliance on different policy tools.
The ultimate testament to the euro's success, however, was the response of the European citizens, who accepted their new currency rapidly and with enthusiasm, as shown by the swift withdrawal of legacy currencies in the first weeks following the cash changeover. Indeed, the introduction of the euro banknotes and coins proceeded far more smoothly than we had dared to expect, and I should like to take the opportunity today, on behalf of the ECB, to express once again my gratitude to the citizens of Europe and all the other parties involved for their contribution to making the cash changeover a success and for their fruitful collaboration with the Eurosystem over the past years. Review of economic and monetary developments Let me now turn to the review of economic and monetary developments. In the light of the central role of maintaining price stability that the Treaty assigns to monetary policy, I shall start by reporting that annual average HICP inflation in the euro area was 2.5% in 2001. The lagged effects of the increase in import prices in 2000, together with the impact of livestock diseases on unprocessed food prices in 2001, contributed to the increase in annual HICP inflation rates, which peaked at 3.4% in May 2001. Since then, the effects of these factors on the annual inflation rates have gradually disappeared. We are obviously not satisfied with HICP developments in the course of last year.