 Many thanks, Mario, for the introduction and for the very long friendship. I recall you as a student. And it's a reflection on how much the world has changed and you were an important part of that change in terms of the impact of students from Europe and particularly from Italy on graduate schools in the United States in economics and on the profession in the United States and in Europe and now, of course, on Europe itself. So I'd like to thank you for this invitation to take part in this lovely event, in this lovely place. And I should announce immediately that although the topic of the conference is inflation and unemployment, I'm going to talk on something else. My theme is taken from Jean Monet, who in 1976 wrote, Europe will be forged in crises and will be the sum of the solutions adopted for those crises. This quote is discussed in the interesting recent paper by Luigi Guiso, Paula Sapienza and Luigi Zingales, whose view of Monet's contentions can apparently be deduced from the title of their paper, which is Monet's Error. But the title is Monet's Error, followed with a question mark. And their conclusion is this. On the one hand, Monet's chain reaction theory seems to have worked. European integration has moved forward and has become almost irreversible. As long as the political dissent is not large enough, Monet's chain reaction theory delivered the desired outcome, albeit in a very non-democratic way. But, and the but is a word I've inserted into this paragraph, as all chain reactions, also Monet's one has a hidden cost, the risk of a meltdown. Well, that's a very interesting paper. It includes the fact that while the popularity of the EU has tended to decline since the time of the signing of the Maastricht Treaty, the popularity of the euro has not declined very much and it is well above 50% in almost every country in the economic and monetary union. Now, this quote is very common now. There are similar quotes from others. Among them Jacques Chirac, Otmar Essing. And I heard it first in a statement to this effect from Jean-Claude Trichet at the 2011 Jackson Hole Conference. He has, in what he said at Jackson Hole, a few lines which I'm sure Europeans find that they can remember. What he said is, at every stage of the process, that is of the European project, we've heard the same story from Americans. You Europeans don't know how to make decisions. You're always slow. What phone number should I call if I want to speak to Europe? That American was Henry Kissinger. This dream is bound to collapse. We have heard that every time and we have been slow, but in the end we have emerged stronger from every crisis. Well, I spoke to Jean-Claude just to check that this is what he said in 2011 and he said he doubts that he said, we have been slow. He said he always says, we have been bold. Well, those two words share a couple of letters, so it's quite plausible. But that's where I first heard this and I started thinking about it. And the more one thinks about it, the more one realizes that this is a common place among Europeans. I think if you were to put everything that various people have said into one statement, it would go like this. The first step on the road to European Union was the creation of the coal and steel community in 1951. At the start we did not have a roadmap, but we had the goal of ensuring that the countries of Europe would never again go to war, and to that end we had to build an institutional structure that would make another European war impossible. From time to time we encountered obstacles in that process. These obstacles often led to crises, but the crises were overcome. And from each crisis the prospects for a united, prosperous and peaceful Europe emerged stronger. And that is what will happen this time too. That leaves us with three questions. Has modern Europe developed primarily through crises? Will it be stronger when this crisis is over? And what challenges or crises is Europe likely to have to deal with in future? Now, despite the fact that political and economic aspects of the structure of the European economy are inherently closely intertwined and have been intertwined throughout history, and saying this one can think of the Romans and later of Charlemagne, I'll focus on the economic aspects of the European project and primarily on its monetary and financial aspects. Inter-European monetary and exchange rate problems for centuries bedeviled European countries and intra-European trade and led to the desire for greater exchange rate stability, perhaps through some form of treaty or agreement or even through a monetary union. Now of course the desire for greater exchange rate stability is true also of almost the entire world and is reflected in the original articles of agreement of the International Monetary Fund. And if you ever manage to catch Paul Volcker and talk about the world with him, you will be lucky to escape without a long discussion of the desirability for fixing the exchange rate system by not having these excessive fluctuations. The first modern international attempt to regularize monetary relations among independent European states led of the Latin Monetary Union, which came into force in 1866. The original members were France, Belgium, Switzerland and Italy. The Papal States joined later in the same year and Greece and Romania joined in 1867. The members agreed to fix exchange rates among them by setting the amounts of silver and gold, weights and fineness in the national coinage with a specified exchange rate between silver and gold. I took these facts from many sources including Charles Kindleberger's Financial History of Western Europe, which was written in 1990. Sorry, I'll just check it out. Anyway, it was somewhere around in the late 1980s and I took it off the shelf, I still have it, and I found this very nice inscription which I'd followed to the letter until a week ago. The inscription says, for the bookshelves of Stanley Fisher, parentheses not to be read. So Mario, you've caused me great moral grief, but I think I'll overcome it. Kindleberger added, in addition, a limit of six francs per inhabitant was set on the value of smaller coins issued by each country because of the extensive senior age on these coins. The LMU fixed exchange rates within a bimetallic international system. And Kindleberger notes that in setting up the union, the Swiss, Belgians, and Italians were in favor of moving to the gold standard, but that quotation, French resistance dominated. This is a general statement, I think, about many things. Then came a series of blows to silver, I'm quoting Kindleberger, the most important occurring after the establishment of the Reichsmunk when Germany in 1873 shifted from bimetallism to the gold standard and the Reichsmunk started selling its silver. In practice, this moved the Latin Monetary Union to a gold standard, a change that was formally recognized in 1878, which was the year of the International Monetary Conference called by the United States to maintain bimetallism, an effort which obviously failed. A lot of the Latin Monetary Union didn't do very much after that. Its exchange rates were adhered to by the original members with one footnote to come, by the original members, and by others, and they continued through World War I or into World War I, but ended during World War I and the union was formally ended in 1927. The footnote says, Greece was suspended from the LMU in 1908 for debasing its gold coinage and readmitted in 1910. No comment. Now to post-World War II Europe and the question of whether Europe has emerged stronger through these crises. The Treaty of Rome establishing the European Economic Community, the EEC, was signed in 1957 by the six original members, Belgium, France, Italy, Luxembourg, the Netherlands and West Germany, which is the group that had set up the coal and steel community. The aim was economic integration among the six members, including a common market and a customs union. At that time, the Bretton Woods Agreement and capital controls were still producing reasonable stability and exchange rates. However, as Bretton Woods began to unravel in the 1960s, exchange rates became more unstable and depreciations and depreciations against the dollar led to sizable shifts in bilateral rates among European currencies. However, the EEC continued to work within the Bretton Woods framework, even as the Bretton Woods approach began to be modified at the end of the decade and the beginning of the 1970s in particular through the Smithsonian Agreement. That agreement permitted movements that, after you'd calculated them, turned up to be up to 9% between any pair of currencies in the agreement and that was more than European countries were able or wanted to permit. So in response to the pressures of the variability of the exchange rate within the Smithsonian Agreement, members of the EEC agreed in 1972 to the so-called snake or the snake in the tunnel that attempted to limit exchange rate fluctuations of each country relative to the dollar. However, this system was soon tested, notably by the oil crises of the 1970s both the effects of the oil price increases themselves and the policy adopted in response differed across countries. Denmark and the United Kingdom exited the snake soon after entering. Italy dropped out in 1973. France participated intermittently during the mid-1970s, first dropping out in 1974. So the snake was a failure, a failure that created problems in leaving fluctuations that were regarded as excessive among European currencies. So if exchange rates among members of the EEC were to be stabilized in the new world of floating rates, the community had to invent a substitute. And in 1978, the members of the EEC created the European Monetary System, EMS, which started with an exchange rate mechanism, ERM1, that limited currency fluctuations relative to a basket of national currencies. All members, and by this stage there were nine, all members except the United Kingdom participated in ERM1. The arrangements also committed central banks to intervene to support the resulting bilateral rates as they approached the limits of the permissible bans. Countries in the year I am at that time also adopted policies that lowered inflation, which brought their interest rates into closer alignment. The initial success of the ERM encouraged European leaders to lift capital controls and built momentum towards Monetary Union, which was reflected in the Maastricht Treaty, which the European Union agreed to in 1991 and signed in 1992. However, around that time, strains also emerged under the ERM in an environment in which the Bundesbank emerged as the dominant national bank in Europe and the Deutschmark as the dominant European currency. This led other countries in the ERM to follow German monetary policy. But in part as a consequence of German reunification, the pressures generated by diverging fiscal policies and tightening German monetary policy contributed to the ERM crisis of 1992. Moreover, the earlier lifting of capital controls and the promises to intervene to support rates that were ultimately not credible put tremendous pressure on the peg rates and clearly on relations among some members of the EEC and one thinks particularly of the United Kingdom in saying that. The crisis forced the United Kingdom in Italy out of the ERM and forced others, Portugal and Spain, to devalue their currencies. The ERM crisis was an apt illustration of the difficulties of trying to manage exchange rates among countries operating under markedly different economic conditions. However, rather than dissuading policy makers from trying to limit exchange rate fluctuations within a system that would nonetheless preserve the possibility of some exchange rate flexibility, the experience seemed to encourage them to continue with the plan of the Maastricht Treaty to introduce a single currency and a common monetary policy at the beginning of 1999. Here, indeed, was an example of a crisis leading to a strengthening of the European system in the direction that the creators of the European Union wanted through the process to create EMU, which everyone, that means me, calls the European Monetary Union and it's actually the Economic and Monetary Union, began well before the ERM crisis. The exchange rate and central banking provisions of the Maastricht Treaty were introduced on schedule, on the schedule set out in 1991 with the ECB coming into existence in 1999. Until about 2009, the monetary aspects of the plans for the development of the European Union seemed to be a major success, albeit not a sufficient success, to persuade all members of the Union to become members of the ECB and adopt the euro with the most notable standout being the United Kingdom. The ERM crisis also drove home the need for greater coordination of fiscal policies in the run-up to the Monetary Union. Members of the EU agreed to the stability and growth pact in 1996. Although, as we all know, the conditions of the pact have not always been observed nor always enforced by Brussels, which was a critical mistake in the early 2000s, the acknowledgement of the need for a coordinated fiscal policy to complement Monetary Union was a step forward, not implemented very much in practice, but one which may be drawn on in future. Well, what lessons can we draw from this history of the region's economic and monetary responses to earlier crisis? Do the results bear out the spirit of the statements by Monet and others about each crisis leading to greater strength? Certainly, each setback and each crisis spurred policymakers to take steps that they might not otherwise have taken at that time, and the end result of those steps has been a more unified European Monetary Union. Success of crises have not deterred policymakers from the goal of economic integration, but rather seem to strengthen their belief in the need for it, and that integration is stronger today than it ever was in the past. Looking back, the progress in this project, the European project, and particularly the monetary aspects of it, the progress in this project from its earliest days after World War II until today has been impressive. Trade integration has led to the free flow of goods within the EU, and this has brought economic gains. Greater trade integration has in turn generated a continued desire for greater monetary integration, which was put in place in 1999 and until recently seemed to be a major success. That success in turn made crystal clear the need for more fiscal integration, a challenge for the future to which we shall return. Well, what about the current crisis of the Euro area? We should remember that two or three years ago there was widespread skepticism on the western shores of the Atlantic and of the English Channel about the viability of the Monetary Union, and there was much discussion of what would happen after the breakup of the present Euro area. Would there be one or two Euro areas, one for the stronger countries, one for the north, one for the weaker, one for the south, and if so, how well each of the two blocks would fare? That's where we were a few years ago. With one sentence, a sentence that included the words whatever it takes, that skepticism was largely though not totally erased. With one decision, the decision to implement quantitative easing, it became clear that the ECB has the capacity both to decide to implement monetary policy at the zero lower bound, indeed below the zero lower bound, and to succeed in implementing that policy. There should be no one whose Bayesian priors have not moved in favor of the survival of essentially the present Euro area, even though we still await the outcome of the Greek crisis, and even though we know that the present crisis is not yet over. Is this an example of the success of the Monet approach? Absolutely. European monetary policy in the earlier part of the great financial crisis was innovative, particularly in the invention of full allotment outright monetary transactions. That policy was inspired by the crisis. By crisis, as were the innovative policies undertaken by the Fed in the United States. More important than that, it is hard to believe that a European banking union would have been put in place in 2014 if it had not been for the crisis. It is no less difficult to believe that a single supervisory mechanism would have been set up absent the crisis. Now, of course, one may say that the ability to make these difficult decisions depended on the skills of the leadership of the ECB. And that is true. It will always be true. And the fact is that when needed, Europe produced the monetary policy leadership it needed. Well, what of the future? What crisis? What extremely difficult decisions await the EU and the EMU? Some are already visible. The decision to use a single currency to drive the European project forward was a risky one. And at some stage, or probably in several stages, it will be necessary to put the missing fiscal framework in place. And that, if it does happen, will be another example of a crisis. One hopes it is the present crisis, whose solution will have strengthened the European enterprise. For success in this area must be one of the most difficult economic challenges. And it's difficult, and it's a very difficult economic challenge because it's at least as difficult, a political as it is an economic challenge. Facing the EU after the present crisis is over. Also awaiting the EU are the possibilities of major difficulties associated with the current Greek crisis and later with a potential British exit. One can, of course, imagine many different types of future crises, including crises that could develop out of the worsening geopolitical situation in which the Western world now finds itself. And one could go on in the spirit of Forrest Gump, which is to say, things happen. Experience tells us that the best way to deal with future crises is to strengthen the economic framework in which they will be confronted. That will require a great deal of thought about how to deal with future crises that could most easily be solved by an exchange rate adjustment. And it will also require developing a better mechanism to ensure that member states run appropriate fiscal and budgetary policies. And it means also seeking solutions to the difficult demographics now confronting many European countries. And it means the continuation of a courageous and effective monetary policy and no less important, courageous and effective regulation and supervision of the financial system. And we're talking about a monetary policy that could do even better if it were accompanied by an expansionary fiscal policy. All that has been done so far makes it very likely that EMU will survive this crisis. But in the longer run, EMU will not survive unless it also brings prosperity to its members. That means that the most important challenge of the future will require an increase in growth in Europe. And that probably requires an increase in productivity growth in Europe. And that is a challenge that faces the entire developed world. Let me conclude by congratulating you, Mario, the management, the staff of the ECB on what you have achieved in your short history and especially in the last few years of extreme crisis. And best wishes for future success in continuing to do your share in contributing to the building of Europe, preferably without having to face too many future crises, useful as Monet's approach suggests such crises could be. Thank you all and good luck.