avenue. combined with a carefully designed framework of targeted and temporary financial support, they should contribute to fostering structural reforms and thereby strengthening competitiveness. ideally, the reform contracts should focus on countries with the largest competitiveness challenges. they should identify the structural bottlenecks to improving competitiveness and target the reforms in a way that will remove those bottlenecks. this would establish a clear link between reforms and restoring competitiveness, which is essential for growth and job creation. smooth functioning of product and labour markets is a prerequisite for growth and job creation in emu. i therefore welcome the announcement that next year the european commission will undertake a systematic review of product and labour markets. for euro area countries the review should allow to assess whether these markets are fully compatible with participation in emu. here, product and labour markets must provide for enhanced adjustment capacity to adapt to a changing global economic environment and ensure sustained high levels of employment. the second priority for 2013 from the ecb ’ s perspective is the completion of financial union with the establishment of a single resolution mechanism. the aim of resolution is to deal with non - viable banks through measures that include their orderly winding down and closure while preserving financial stability. such a mechanism will make it possible for banks to fail in an orderly manner. improving economic union by restoring competitiveness and the functioning of product and labour markets on the one hand, and setting up a single resolution framework on the other hand are key priorities for 2013. this committee has always pushed for ambitious european solutions in the field of financial and economic governance. i am confident that you will again play an instrumental role in moving the agenda forward and adopting the relevant legislative proposals. thank you for your attention. i am now at your disposal for questions. bis central bankers ’ speeches

recent decision to establish the ssm have raised questions about how monetary policy responsibilities and supervisory responsibilities should be appropriately separated. in recent years, many central banks have, for good reasons, assumed supervisory roles. fourteen of the 17 national central banks in the euro area have a role in supervision and so too do several major central banks elsewhere in the world. indeed, the global financial crisis has generally led to closer ties between central banks and financial supervision. the bank of england, for example, will soon assume supervisory responsibilities previously assigned to the financial services authority. in the us, the role of the fed in financial supervision has been strengthened. this all suggests that the relationship between monetary policy and financial supervision is particularly important in times of crisis. it is not by chance that historically the first central banks were supervisors of commercial banks. the ecb will establish clear guiding principles and internal operating practices to ensure effective separation of monetary policy and financial supervision. let me briefly elaborate. first, the ecb ’ s involvement in financial supervision has no bearing whatsoever on our primary objective of price stability. it bears neither on the objective itself, which is statutory, nor on its quantified expression of inflation rates below, but close to, 2 %. bis central bankers ’ speeches second, a supervisory board will form the centre of gravity for the conduct of financial supervision. it may encompass a geographical entity that is somewhat wider than the euro area if, as we hope, several countries that are not currently euro area member states decide to join the ssm. third, separation between monetary policy and financial supervision will in particular take the form of independent analysis and prescription for the use of policy tools for each of the two functions. this will rely on strong governance. we will establish appropriate internal procedures that ensure clear functional separation. here we will follow international best practice. while separation of the two functions is essential, it is an established fact that stronger supervision facilitates the conduct of monetary policy. let me give you just two examples. first, in the absence of financial stability, standard monetary policy tools – namely, changes in the short - term interest rate – lose some of their potency. effective supervision that contributes to a stable financial system can only benefit the smooth transmission of monetary policy. second, effective financial supervision can counteract excessive leverage and exuberant credit expansions, which can generate inflationary pressure over the longer term. thus, in mitigating the build - up of macroeconomic imbalances, effective supervision can foster a stable macro