Evidently, the spread of fiscal difficulties in one specific country to other Member States can run through many channels, which may include the exposure of financial institutions to sovereign debt, the correlation between risk premia on markets and the effects associated with changes in trade flows. The importance of these mechanisms is unquestionable. But the speed at which tensions have spread in this case and their initial and sharp impact on those Member States whose public finances have most deteriorated suggest that the weaknesses  4  BIS Review 86/2010  perceived in the institutional arrangements for governance of the euro area may have played a central role. As has been brought home to us in these months, the rapid spread of tensions has meant difficult and far-reaching decisions have had to be adopted on two fronts: the common European front and the domestic front of each Member State. On the European front, the Heads of State and of Government and the Ecofin outlined a powerful programme of financial support for the Greek authorities. Implementation of the programme was conditional upon Greek economic policies being redressed with regard to their fiscal consolidation strategy, which had to be strengthened and accelerated, and to the need to undertake ambitious structural reforms to move back onto a path of sustained growth. Subsequently, the agreement to create a European stabilisation mechanism strengthened this firm commitment of the Member States to maintaining the stability of the euro area.
A second observation is that over this nearly twenty five year period, the challenge for monetary policy in many countries has shifted from one of getting inflation down to target, to one of getting it up to target. This has been less marked for the UK, in part because in a more open economy movements in the exchange rate have tended to raise inflation during this period. However we are facing a period of below target inflation today. And this is very different to the challenge of the early days of the MPC. It is important to emphasise that the UK regime of inflation targeting is a symmetrical one, and with very good reason. Both high and low inflation are costly. Put like this, the story is pretty obvious and uncontroversial. An independent central bank with a symmetric inflation target has the same objective either way, whether inflation is above or below target – it cannot throw the towel in. To do so would amount to abandoning our remit and our independence. 1/3  BIS central bankers' speeches  But that is not the end of the story because of late it has been said that central bank independence has been compromised by the actions taken in the face of the pandemic. What this really comes down to is the relationship between monetary and fiscal policy, between the economic policy of the Government and the actions of the central bank.