alone. we should not become mired in past know - how and concepts which take no consideration of the changing circumstances of the era. and it is for these reasons that i would point out the need that our activities be always informed by the twin principles of “ relevance to reality ”, meaning that our operations should be intimately linked to the realities on the ground, and of “ globalization ”. in the course of the last 60 years, which have seen korea grow from a poverty - stricken nation to a g20 member country, the bank of korea has contributed greatly to economic development as the “ central bank of the republic of korea ”. i believe that we are now called upon to develop into a “ world class bank of korea ” while carrying on this tradition. over the last one year, we have taken a huge step toward a new advance, through the structural reform of our organization and improvements in our modes of operation. going ahead, in conjunction with these efforts, we look forward to accomplishing our vision of a “ global bok ” by striving even more to change our perceptions and build our capacities, driven by the impetus for change coming from within. bis central bankers ’ speeches dear friends and colleagues, there are many tasks to be pursued if we are to realize our vision through actual deeds, rather than seeing it stay as a mere catchword. i would say that the following challenges await those departments with responsibilities related to actual policy. first of all, a new monetary policy paradigm appropriate to global financial and economic conditions previously mentioned and to the changing role of the central banks must be sought out. the conduct of policies based on their relevance to the korean economy, while at the same time accurately charting the ebbs and flows of the world economy, is called for. we will also need to assiduously study methods of monetary policy operation that can bring about financial stability as well as firmly anchoring price stability. we will need to strive actively to form a concrete foundation for strengthening the bank ’ s role in financial stability. we must harness all our wisdom to devise various arrangements that can uphold the framework of international cooperation – in regard for example to the scope of the central bank ’ s financial stability mandate, to the associated policy instruments, and to the framework for conduct of the policies concerned. in view of the fact that in this global era financial stability cannot be achieved by the efforts of any single country alone, it is vital to build up international financial cooperation and global networks. for this very

from escalating. to some commentators, the current situation might look similar. greece ’ s newly elected government objected to complying with the financial assistance agreements and intended to withdraw some of the reforms that had already been adopted. there were even brief calls for further debt relief. however, after intense negotiations among the finance ministers of the euro area, the greek government settled for requesting an extension of the current programme. after the greek government had also committed to pushing ahead with economic and fiscal reforms, the finance ministers of the euro area approved a four - month extension of the programme. the details of a new financial assistance programme need to be worked out by summer. greece certainly needs further assistance from the rest of the euro area. however, further assistance can only be granted if greece continues with its efforts to restore sound public finances and competitive economic structures. bis central bankers ’ speeches some observers see these developments as an indication that financial integration in europe has failed. i see these developments as an indication that financial integration in europe has to go further. let us take a look at three areas where further integration could be the way forward for europe. 2. fiscal union – beyond the horizon the first area is public finances. and in order to understand the core of my argument, it is important to be familiar with the particular features of the european monetary union. the european monetary union is special in that it combines a single monetary policy with national fiscal policies. the monetary policy for the 19 countries of the euro area is decided by the governing council of the ecb in frankfurt. however, the fiscal policies of the 19 euro - area member states are a matter for the national policymakers – each country decides on its own government revenues and expenditures. this imbalance of responsibilities gives individual countries an incentive to borrow – a “ deficit bias ” is built into the system. this is because the negative consequences of borrowing are spread across all the member states of monetary union – for example, by means of a higher interest rate level for all of them. our objective should be to counter that “ deficit bias ” to ensure a stable monetary union. this can only be achieved by realigning responsibilities – liability and control have to be in balance. and one way to rebalance liability and control is deeper fiscal integration. if we were to take this path, the european level would gain certain control rights over national budgets. this would amount to what is known as a fiscal union. however, such a step would depend on the countries of the euro area