The first real source of asymmetry is the very principle of limited liability. Beyond a certain level of remuneration and risk taking, one should ideally envisage a system which mimics that of partnerships or full personal liability. The fact that this is probably too ambitious justifies more ad-hoc complementary forms of regulation. Shareholders have by and large paid their dues in the crisis, but creditors typically have not. This is the level at which there is most to gain in both correcting the incentives (ultra-high leverage should worry creditors first, and regulators only afterwards) and protecting tax payers. By definition banks rely a great deal on credit; it is conceptually clear that creditors should come into play before taxpayers when something goes wrong. This would naturally be the case via bankruptcy proceedings. If we cannot go that far because of the crucial role of banks and certain financial institutions, we must find other ways for creditors to step in before taxpayers are involved. This can be achieved through ways of anticipating part of bankruptcy outcomes (living wills) or/and through some form of automatic conversion of a significant proportion of bank debt into equity. Secondly, these considerations address the financial stability issue only through the lens of individual institutions. We now know that this is not enough. Microprudence must be supplemented by macroprudence, i.e., a system design that encourages well-managed individual institutions to act, in particular at times of crisis, in ways that do not make life harder for other institutions under stress.

Even small deviations from the targets can quickly jeopardise the progress made and undermine confidence. To address imbalances, countries also need to take structural measures and deal with market rigidities. Suitable structural reforms can have a positive impact on growth and employment already in the relatively short term, and can thus also help to mitigate the negative effects of consolidation. Structural adjustment nevertheless remains difficult, but not impossible. This is proved by the experience in the Federal Republic of Germany over the past years. Losses in competitiveness after the reunification boom in the early 1990s were effectively addressed by means of moderate wage growth over extended periods of time. At the same time, the German experience shows how well-targeted structural reforms strengthen potential growth and boost employment. The labour and welfare reforms contributed significantly to positive economic developments in Germany over past years. In the remaining time, let me also briefly address the other two challenges faced by euro area governments, namely the instability of the financial markets and the remaining deficiencies in the European economic governance framework. Banks should continue to strengthen their balance sheets. The financial system has to return to fulfilling its primary task of providing credit to the real economy. But, as I have said before, euro area governments also have to do their part. Sound fiscal positions across the euro area will contribute significantly to strengthening confidence in a banking sector that relies heavily on government bonds as safe assets and for use as collateral.