Sharp declines in asset prices and households’ expectations led to a swift rise in precautionary savings. Conditions worsened rapidly in labor market and job losses have reached levels never seen since the Great Depression. Unprecedented policy reactions to crisis taken by government and central banks worldwide have managed in stabilizing the financial conditions of banks and reduced funding pressures. BIS Review 121/2009  1  Thanks to the decline in counter-party and liquidity risks and the ease of tension in international markets, emerging market equities have rapidly gained ground, bond spreads have narrowed, and volatility in exchange rates came down. Commodity prices have rebounded from their recent low levels. Capacity utilization ratios and industrial production have globally recovered compared to the first quarter of 2009. However, taking into account the loss of confidence and the size of the damage financial institutions and households have suffered, the fragility in the financial sector and reluctance in consumption and investment is likely to continue in the near future. Despite recent signs of revival in global economy, the pace of economic activities remains weak. Problems prevail in the credit markets. Unemployment rates keep rising. In summary, all indicators point to a recovery, which is slow, gradual and painful. Distinguished Guests, Global problems require global solutions. Quite often, changing an existing system is more difficult and expensive than forming a new one. It is obvious that this ongoing crisis is going to end sooner or later as did previous crisis.
Likewise, we cannot be specific today about the design of the “final” post-crisis operational framework. Before  8  BIS Review 51/2010  deciding on this, we will need to consider thoroughly the lessons to be learnt from the crisis. However, the operational framework that prevailed prior to the turmoil seems to provide a good benchmark. It served us well prior to the crisis, and could be adapted quickly as circumstances worsened. Concluding remarks Let me conclude. There is no doubt that the crisis will leave us a heritage of severe macroeconomic imbalances. Dealing with them will represent one of the most daunting challenges for policymakers in modern history. Against this backdrop, let me emphasise that the Governing Council will continue to deliver on its mandate, which is to maintain price stability over the medium term. All our decisions regarding an exit from supportive measures need to be seen within this context. As regards fiscal policies, it is essential to prevent public finances from running out of control. Clearly, this will require a very ambitious fiscal consolidation effort. In particular, as regards the consolidation strategy, and given that the tax burden is already high in many countries, the fiscal adjustment will have to be primarily expenditure-based. Finally, let me stress that any call to reduce the real value of public debt through higher inflation will be firmly opposed by the ECB. A low and stable level of inflation is a prerequisite for confidence, stability and sustainable growth. Thank you.