. and pisani - ferry, j., “ the governance of the european union ’ s international relations : how many voices? ”, in bis central bankers ’ speeches in the economic sphere, what should our shared goals be? the “ five presidents ’ report ” 17 seeks to answer this question from the perspective of our monetary union. but the question is also relevant for the internal market, and thus for the european union as a whole. the five presidents ’ report stresses that we need to reinforce the stability of our economies by developing solidarity mechanisms, in particular within the monetary union, while ensuring that governments and economic actors behave responsibly. this is what has been done within the framework of the banking union, and it ’ s what we must aim to do within the framework of the capital markets union. 18 likewise, greater risk sharing in the fiscal sphere presupposes sufficient economic convergence among participating countries. solidarity cannot turn into a system of permanent transfers, which is not part of the founding “ contract ” of monetary union. to put it another way, this is about establishing a new european social contract, which can be designed only under john rawls ’ “ veil of ignorance ”. 19 such greater risk sharing also presupposes responsible fiscal policies, which are in the interests of both individual countries and their neighbours. i want to make this clear : we cannot advocate a europe of solidarity while believing that the economic policies of each euro area country are the business of that country ’ s parliament alone. the crisis has fully exposed that contradiction. second, efficiency gains could be achieved if we were to progressively pool certain resources within the framework of the single market – with such action being justified by economies of scale and scope, network effects and externalities. this was the logic behind the establishment of the european coal and steel community in 1951, and today it informs the juncker plan, as well as efforts to develop an energy union and a single digital market. the joint implementation of a political project and an economic strategy also assumes that our political union will be strengthened. to remedy the “ executive deficit ” 20 – in other words, to reduce the difficulties involved in taking decisions that i mentioned earlier – we should favour sharing decisions that affect the future of the euro area within common institutions with a european mandate and democratic oversight at european level. how would the governing council of the ecb have dealt with the crisis if it was just a club of 19 national governors making decisions by consensus? following the lead of jean

formed by growth and consolidation are increasingly complex entities that create the potential for unusually large systemic risks in the national and international economy should they fail. no central bank can fulfill its ultimate responsibilities without endeavoring to ensure that the oversight of such entities is consistent with those potential risks. at the same time, policymakers must be sensitive to the tradeoffs between more detailed supervision and regulation, on the one hand, and moral hazard and the smothering of innovation and competitive response, on the other. heavier supervision and regulation designed to reduce systemic risk would likely lead to the virtual abdication of risk evaluation by creditors of such entities, who could – in such an environment – rely almost totally on the authorities to discipline and protect the bank. the resultant reduction in market discipline would, in turn, increase the risks in the banking system, quite the opposite of what is intended. such a heavier hand would also blunt the ability of us banks to respond to crisis events. increased government regulation is inconsistent with a banking system that can respond to the kinds of changes that have characterized recent years, changes that are expected to accelerate in the years ahead. the desirability of limiting moral hazard, and of minimizing the risks of overly burdensome supervision and regulation, has motivated those of us associated with the basel exercise to propose a three - pillared approach to prudential oversight. this approach emphasizes, and seeks to strengthen, market discipline, supervision, and minimum capital regulation. market discipline in trying to balance the necessary tradeoffs, and in contemplating the growing complexity of our largest banking organizations, it seems to us that the supervisors have little choice but to try to rely more – not less – on market discipline – augmented by more effective public disclosures – to carry an increasing share of the oversight load. this is, of course, only feasible for those, primarily large, banking organizations that rely on uninsured liabilities in a significant way. to be sure, these organizations already disclose a considerable volume of information to market participants, and, indeed, there is ample evidence that market discipline now plays a role in banking behavior. nonetheless, the scale and clarity of disclosures is better at some institutions than at others and, on average, could be considerably improved. with more than a third of large - bank assets funded by non - insured liabilities, the potential for oversight through market discipline is significant, and success in this area may well reduce the need to rely on more stringent governmental supervision and regulation. the channels