the set - up of the european monetary union. it is remarkable for its asymmetry : whereas monetary policy has been communitised at the european level, fiscal policy has remained a matter of national responsibility. this is by no means a bad thing in itself, as it does have lots of merits. in particular, it grants member states sufficient leeway to preserve their diversity, that is, to establish their own business models or to tailor economic and social institutions and policies to their own national preferences. but to make sure that such an asymmetrical set - up of a centralised, single monetary policy and decentralised fiscal policies works well, fiscal discipline is absolutely essential. past experiences have shown that monetary unions are rather like any normal family – if there is a quarrel, then it will be about money. this becomes particularly relevant as the set - up of the european monetary union can further compound the tendency of governments to finance their spending through debt because the consequence of bad policy choices can more easily be externalised to neighbouring countries. in addition, if market participants tend to see the monetary union as a system of mutual financial assistance in the event of serious trouble, doubts about a country ’ s solvency could spread more quickly to the other member states. this is why common fiscal rules are an integral part of the treaty establishing the monetary union. ecb president mario draghi once aptly summed up the rationale behind these rules as follows : “ the consequences of misguided fiscal policies in a monetary union are too severe to remain self - policed. ” the importance of sound fiscal policies from the perspective of a central banker also stems from the ability of monetary policy to accommodate high levels of public debt. this, however, bis central bankers ’ speeches could threaten price stability in the longer run. thus, the higher public debt becomes, the greater the pressure that might be applied to monetary policy to respond accordingly. this once prompted mervyn king, the former governor of the bank of england, to quip that : “ central banks are often accused of being obsessed with inflation. this is untrue. if they are obsessed with anything, it is with fiscal policy. ” this “ obsession ” holds even truer for a stability - oriented central bank within a monetary union. against this backdrop and in order to keep monetary union on track despite these dangers, the founders of the european monetary union drew up the fiscal rules enshrined in both the maastricht criteria and

of the european banking union – the single resolution mechanism – comes in. from 2016 onwards, european banking supervision will be supplemented by a european single resolution mechanism for banks. from then on, the banking union will rest on two pillars and provide a stable framework for european financial markets. 4. conclusion ladies and gentlemen, let me return to the beginning of my speech. with regard to regulatory reform we might ask : mission accomplished or mission impossible? at the end of the day, the most probable answer is : a bit of both. regulatory reform will never be completed because the financial system is evolving constantly and regulation has to keep pace. bis central bankers ’ speeches at the beginning of my speech, i identified the crisis as being the problem in the banking system and regulatory reform as the solution. to be sure, there are many people in this world whose profession it is to invent problems in order to sell expensive solutions. as far as financial regulation is concerned, the problem at hand is real : a financial crisis that brought the financial system to the brink of collapse and imposed huge economic and social costs on many people. it is rather obvious that regulators did not invent the problem, and, equally important, the solution we propose is not expensive when measured correctly. i do not deny that stricter regulation translates into higher costs for banks. however, when measured against the burden that financial crises place on society, these costs seem to be justified. but regulation and supervision are only one side of the coin. if we want the banking system to become a safer place, banks managers ’ behaviour will also play an important role. what we need is a change of culture. the times of “ greed is good ” should be long gone. we should see the financial system for what it actually is : a service provider for the real economy. subscribing to this notion of finance will probably be the most important step towards a more stable banking system. thank you for your attention. bis central bankers ’ speeches