to slow reactions or unwillingness to react at all to noticed problems in banks. third, a suspicion of political influences in supervision has weakened the standing and credibility of supervisors. moreover, in 2010 it became desperately evident that the bank and sovereign risks are tightly interconnected and with two - way causality. the establishment of the ssm will be a major step forward and can help to address these shortcomings but, alone, will not be sufficient. single supervision needs to be accompanied with a system and powers to restructure and wind down failing banks while minimizing the cost to taxpayers. this is also the main thrust in the financial stability board ’ s ( fsb ) key attributes of resolution. this is more or less what the banking union is about. the regaining of confidence in the banking sector is the key to reverse recent developments towards financial fragmentation and help re - establish a well - functioning interbank market and capital flows. these are of key importance also for restoring economic growth and the single market programme. bis central bankers ’ speeches the overall banking union framework – key elements slide : key elements of the banking union the first element is the single rule book. the eu has the objective of developing a single rule book, which is based on the idea of maximum harmonization of basic regulatory requirements ( such as capital adequacy rules ) while leaving leeway for national authorities to impose stricter requirements nationally for systemic stability and macro - prudential reasons. the single rule book for banking is based on crr / crd4 / deposit guarantee directive and the upcoming bank recovery and resolution directive and is complemented by the binding standards issued by the european banking authority ( eba ). the eba has the legal competence to develop and monitor the implementation of the single rule book. the eba also has the task in moving ahead with the harmonization of supervisory practices. the ssm will have to develop strongly harmonized supervisory practices ( “ supervisory manual ” ) in order to create a single system – also extended to smaller banks. it is expected that the ssm manual will be significantly more detailed than the eba ’ s handbook, but the two will need to be consistent and therefore close cooperation has been already started between the ssm and the eba. the establishment of the ssm is the second element of the banking union. the ssm will be a unitary supervisory system, composed of national competent authorities and the ecb – and close cooperation between them – and with the possibility of

has even stronger powers in the field of the internal market and competition policy. and there is a long tradition and case law. by these tools the commission has accelerated the liberalisation in member states, controlled the state aids and promoted competition. i am sure the commission will not hesitate to use these competencies in the new member states. and there are two more incentives : most of the new member countries are working towards joining the european monetary union ( emu ). maastricht criteria and associated institutional reforms required will certainly foster future reforms, and not just those required in maastricht criteria explicitly. for instance, some studies show that structural reforms in the labour markets may be associated with implementation of new monetary regimes, such as inflation targeting. and secondly there is and will be a lot of healthy competition between new member states about new foreign investments. a successful reform process will be an asset in this field. 4. stable and satisfactory institutional transition regarding institutional transition, we need to define “ stable ” or “ satisfactory ” institutional transition. the paper seems to take a view according to which “ stable ” institutional transition means a process that has evolved progressively without major disruptions or reversals. by looking how the number of interesting indicators that the paper has compiled has evolved, this indeed seems to be the case : most of the institutional indicators show a steady pattern of improvement. yet, as can be observed from the same indicators, there are also rather large differences between the countries. one may also want to assess stability and satisfaction of institutional transition by analyzing its consequences on economic, political and societal development. one may use indicators such as fluctuations in inflation, public sector deficit, interest rates, exchange rates, different measures of political stability, number of strikes, etc to measure stability from this point of view. looking some important macro indicators to convergence, the economic stability has improved as regards to inflation. as an average in the new member countries, the harmonized index of inflation declined from close to 10 % in early 1997 to around 2 % in mid - 2002, where it remained until early 2004. on the contrary, progress with fiscal consolidation has generally been too slow and majority of countries have yet to achieve a situation which, in broader view, might be judged as sustainable in the medium term. one may also assess the satisfactory element of an institutional transition by looking at some more indirect measures. for instance, extent to which there has been reversal or drastic changes in inflow of foreign direct investments gives rather good indication as to