rescue measures helped to prevent the crisis from escalating. but they did so by mutualising fiscal liability on a substantial scale. fiscal and economic policies, on the other hand, essentially remained a national prerogative, though the fiscal rules have admittedly been adapted. as a result, the balance between liability and control has been thrown out of kilter. however, striking an even balance between liability and control is crucial for the functioning of emu – and that ’ s a point i made in my last speech in amsterdam 2½ years ago. and i also said in my speech back then that there are two possible ways to restore the balance between liability and control : deeper integration, or more individual national responsibility on the part of the member states. the first solution would be to create a fiscal union with centralised decision - making powers. only within this framework would fiscal transfers and mutual liability via eurobonds be consistent and put control and liability back on an even keel. while a fiscal union would not guarantee sound fiscal policymaking, it could certainly mitigate the deficit bias of individual member states. and interestingly, even for karl otto pohl, the former bundesbank president who was a member of the delors commission, the “ fiscal union approach ” was the intuitive one : “ in a monetary union with irreversibly fixed exchange rates, the weak would become ever weaker and the strong ever stronger. we would thus experience great tensions in the real economy of europe. for this reason alone, monetary union without the simultaneous integration in fields like fiscal policy as well as regional and social policy is completely inconceivable. " but let ’ s be honest here : a fiscal union approach was not on the cards 2½ years ago, and it has become ever more improbable since then. the outcome of the brexit referendum has laid bare the scepticism about the european project and a tendency to reject further integration steps. surveys reveal that many citizens in the eu doubt whether the existing process of integration is still sustainable. this is possibly not unrelated to the fact that the ongoing debate over the right response to the crisis in the euro area has brought out into the open the persistent differences of opinion in fiscal and economic policy matters. 5 / 9 bis central bankers'speeches this is all the more astonishing because the euro - area countries had actually already established a consensus on the appropriate role of fiscal policy – as documented in the stability and growth pact. so building trust in

are generally not only used to cover budget deficits, but also to redeem maturing sovereign bonds. by implication, when a programme is activated, european taxpayers are, in essence, bailing out the respective country ’ s creditors. if a haircut ends up being the only way to restore a country ’ s debt sustainability, taxpayers, rather than investors, would shoulder the bill. this does not exactly foster any willingness on the part of member states to agree to restructure a programme country ’ s debt. instead of a truly viable solution being reached, when push comes to shove, a strategy of muddling through would win the day. that ’ s why the bundesbank is proposing to add a clause to the government bonds of euro - area countries which automatically extends the maturity of bonds by three years if the member state in question applies for esmassistance. this way, the initial creditors would remain liable, and if the government debt really does need to be restructured, that could be done in an orderly fashion without jeopardising financial stability. our proposals would help to sever one direction of the sovereign - bank nexus : banks would be better shielded from a deterioration in public finances. the financial crisis showed, however, that wobbling banks can lead to stumbling sovereigns. to cut this direction of the nexus, financial market regulation will need to be enhanced further. 4. financial market regulation in the mid - 18th century, amsterdam, then a global financial centre, had to overcome a series of bank crises. one of these crises occurred when the seven years war came to an end in 1763. in the aftermath of this event, one of the biggest dutch banks ( de neufville ) collapsed when commodity prices, unable to hold their inflated war - time levels, plummeted. once it became clear that the core of the crisis revolved around a single financial institution, the bank was resolved by an ad hoc consortium of its various creditors. nowadays, no such ad hoc solutions should be needed any longer because of the reforms that were implemented in the wake of the financial crisis. in the euro area, a common restructuring and resolution regime ( the single resolution mechanism ) and bank supervision body under the aegis of the ecb ( the single supervisory mechanism ) were established. the single resolution mechanism and the bank recovery and resolution directive ( brrd ), which assures the harmonised implementation of the rules throughout all member states, substantially strengthens the principle of individual responsibility in the