I have now described the fault lines in cross-border banking, both at the global and the EU/EEA level, and how they burst open in a particularly violent form in the case of Iceland. But what is and what should be done about this? The problem with giving a precise answer to this question is that what needs to be done at the national level will depend on what is ultimately done at the global level, and for countries that are part of the EU single market it also depends on what is done at that level. In turn, necessary reforms at the EU or global level are put in place partly to avoid national responses that would unduly fragment the international financial system or, in the case of the EU, undermine the single market and the eurozone. Bearing in mind that circularity, let me start at the national level. The key issue here is that, as long as global risks and EU flaws are not dealt with, individual countries are forced to take action to protect themselves: action that might contribute further to the retreat of cross-border banking and financial globalisation more generally. Such action might take the form of restricting international activities of home banks, placing much stricter prudential limits on foreign currency maturity mismatches, limiting FX lending to unhedged parties, and deciding that deposit insurance shall be paid only in the local currency.
How innovative is an ECB allowed to be, which as a start-up from the year 1999 is in many ways itself an innovation, and as a custodian of a currency without a state can only partly be compared with other central banks. Of course I can only give you today, less than a week before our ECB Governing Council meeting, some general reflections from my personal point of view. I think we can all readily agree that innovation cannot be an end in itself. The ECB must and will act only in accordance with its mandate. Price stability is the guiding principle of our actions. The definition of our mandate does not allow for innovations. Moreover, in uncertain times of crisis a clear focus is not less, but doubly important. Central banks therefore have a particularly strong understanding of tradition, and for a good reason: monetary policy is all about trust, reliability and consistency. Innovative measures must therefore be judged against our mandate of maintaining and creating price stability. As with any decision, innovation demands a sober analysis of the costs and benefits, the opportunities and risks. Allow me to slip briefly into legalese: innovative monetary policy measures, too, should be suitable to achieve their objective. Since monetary policy measures also have side effects, a central bank should use the mildest means to achieve the fewest possible side effects. Low inflation rates and the catalogue of measures So what does this mean for the current situation? Unanimous monetary policy can and must maintain price stability.