measures that help europe to act. it is in this context that i return to the topic of the capital markets union. the capital markets union can be an important means of providing companies with the necessary funding to manage change. this includes funding for new scientific knowledge and for innovations to help us thrive in our future environment. europe is relatively good at research. 6 and research is a crucial basis for innovation. however, a lack of available capital often prevents young innovative companies from growing. a key reason is that capital markets in europe are still highly fragmented and rather underdeveloped compared to those in the united states, for example. although market structures are not fully comparable, venture capital investment may serve as an example here. relative to gdp, its size in european countries is less than one - tenth the size in the us. 7 a european capital markets union would give firms better access to risk capital in europe – notably young firms in their start - up and scale - up phase, and it would provide better exit options. by mobilising more private capital, the capital markets union could improve opportunities for economic growth. and it could foster much needed investments in europe's digital and sustainability transformation. 2 / 3 bis - central bankers'speeches it is a real challenge to make progress at the european level and in the 27 member states on the legal initiatives necessary to realise the capital markets union. but if we agree that the changes we see are global in nature, then we should not try to deal with them at the national level. we should strive for multilateral solutions. here in europe, the european union provides a wonderful opportunity to find common approaches that many around the world can subsequently gather behind. i am optimistic that the new european commission will build momentum to move forward – not least with respect to the capital markets union, which was recently given fresh impetus by member states'political leaders. we have the potential to rejuvenate the european idea. a thriving research and innovation ecosystem will support that goal – with stable prices, sufficient financing opportunities and steady growth. let us all do what we can to strengthen europe at the current juncture. 1 european union ( 2024 ), europeans'attitudes on trade and eu trade policy 2 see eurobarometer spring 2024, question sd18a, standard eurobarometer 101 – spring 2024 3 see eurobarometer spring 2024, question qa12, standard eurobarometer 101 – spring 2024 : 62 % say that they are optimistic about the

speeches central challenges in both the design and the implementation of new – and, hopefully, good – regulation. and nobody would dispute the fact that financial markets and their participants have become very complex. there are many levers which supervisors and / or lawmakers can pull. in some cases, pulling only one single lever the wrong way is enough to threaten the stability of the system. this can lead to unintended consequences such as regulatory gaps, duplication or arbitrage. let me discuss, at this juncture, a phenomenon known as the “ cobra effect ”. the cobra anecdote goes back to colonial india. in order to contain a plague of cobras, the british colonial administrators offered a bounty for every dead cobra. the plan initially seemed to work ; the colonial administrators were presented with a large number of dead cobras. unfortunately, however, this failed to bring the plague under control. most of the snakes delivered were actually not wild animals, but had instead been bred by entrepreneurial indians in order to collect the bounty. once the governor caught wind of it, he cancelled the premium, and the breeders then released the now - worthless snakes into the wild – thus making the plague worse than before... regulatory measures, too, can have undesired and unintended consequences. when the first basel capital accord was introduced 25 years ago, industrial countries´ government bonds, for instance, were classified as safe because nobody thought a government could default. bank regulators thus regarded government bonds as an anchor of stability for banks ’ balance sheets. as a result, banks today do not need to hold capital against the risks on oecd countries ’ government bonds. in addition, rules to limit concentration risk do not need to be applied to government bonds. it is therefore no big surprise that this exception in the basel framework had unintended consequences. banks poured massive funds into government bonds – especially domestic bonds. this created a kind of “ doom loop ” between the solvency of sovereigns and the solvency of domestic banks. we have to break this dangerous loop by ending the preferential regulatory treatment of government bonds. however, as the story of the cobra effect shows, abrupt changes carry dangers too. immediately prescribing that a certain amount of capital be held to back the risks on government bonds could lead to another set of unintended consequences. but that does not alter the fact that the existing rules need to be changed in order to break the “ doom loop ” between sovereign