2  BIS central bankers’ speeches  In this context, the need for principles of the above-mentioned international organisations to be supported and adhered to by both private and public sectors becomes increasingly clear. This should be done by adopting and implementing codes of conduct at corporate level and industry-wide, as well as by improving the legal, institutional and regulatory framework pertaining to corporate governance. Let me now turn to Europe. In the case of the European Union, the crisis has exposed fundamental weaknesses of the European economy, revealing growing internal imbalances. The functioning of the European Monetary Union has been under particular stress as the existing surveillance procedures proved to be not comprehensive enough. One point that has been neglected was the relevance of current account deficits. I believe that within the EU, the external deficits of Member States are relevant as they reveal discrepancies related to competitiveness, and therefore inconsistent and weak coherence of the economic policies. The accumulation of imbalances has triggered a slow pace of recovery in Europe. The crisis took its toll on productivity, and prices and competitiveness remain key issues. Also, the functioning of the European Monetary Union caused headaches because of insufficient comprehensive preventive and supervisory procedures. Moreover, sovereign debt crisis has brought in the limelight not the crisis of the euro per se but of the institutions that governs the eurozone. In this context, I will repeat what Douglas North said: Institutions play a pivotal role in governance.

These principles on corporate governance are largely part of those adopted in 1999 and subsequently revised by the OECD in 2004. They include equal rights and a level-playing field for shareholders, the role of stakeholders, disclosure and transparency, and board accountability. Corporate governance has direct implications on the behaviour of the organisation towards its employees, shareholders, customers, partners, banks included. Poor governance reduces the potential and, worse though, can lead to financial distress and even fraud, while well-governed companies will usually be more competitive than their rivals and will be able to bring in investors who will invest their money in the companies’ future growth. I will also add that no matter how relevant formal rules are to the proper functioning of an economy, it is essential to trust in business partners’ word given and their honesty. Whenever this is missing, not only dealings in goods and services, but also financial transactions are hit hard. Given that integrity, confidence and reputation weigh heavily on the economy, everyone pins his hopes on the business sector. Future wealth depends now more than ever on how this issue is dealt with. This is why we can assert that, in extenso, good corporate governance underpins the integrity and efficiency of financial markets. Moreover, for the banking field, in light of recent developments, I truly believe that increased ethics is to be welcomed. Thus, good practices in corporate governance are an essential ingredient of wealth and sustainable growth.