terms, which means money – and not a small amount at that. the degree of europeanisation of financial stability policy is closely linked to the europeanisation of fiscal control and intervention rights in this connection, if not inseperable. this is where i see the greatest challenges – for monetary policy and the entire monetary union alike. 3. on the financial and economic foundation of monetary union the crisis has exposed the weaknesses of monetary union. some member states experienced severe unsound developments in their financial system, their national financial policies or their economic structures – unsound developments, which the institutional framework both failed to prevent and underestimated in terms of their impact. the foundation of monetary policy proved to be too weak. for this reason, the foundation must be strengthened and deepened in order for the euro area to remain a stability union and to regain confidence. this requires clarity as to what the objective of monetary union should be and how to achieve it. clarity especially in terms of the depth of integration we are aiming at and any transfer of responsibilities from the national to the european level that this entails. we must find a framework that is coherent in itself and that clearly allocates responsibilities. clarity and confidence require political consensus which must, above all, be borne by the approval of the public and the design of the treaties and constitutions. this is the only way in which a solid foundation can be created, upon which a stability union can then be based. if the foundation bis central bankers ’ speeches is incomplete, brittle or threatens to be undermined, confidence is destroyed. policies can of course try to mend the cracks in the building or support those parts in danger of collapsing. however, nobody will feel safe inside such a building anymore. in principle, there are two approaches to achieving a stable monetary union. first, the member states could return to the principles stipulated in the maastricht treaty and their current constitutions, where emphasis must be put on both sides of individual responsibility – making their own decisions and bearing the consequences themselves. the guiding principles here are national sovereignty and subsidiarity. fiscal and economic policy thus remains chiefly a national responsibility, as does the stability of national banking and financial systems. a strict framework and interest rate premiums to be paid on the capital markets ensure that incentives are in place for member states to pursue stability - oriented policies. there is no place in such a scenario for far - reaching joint liability. in this approach, the current framework can also be

confidence of israelis and of foreign investors in the israeli economy. that confidence is manifest not only in the recovery of growth, but also in the relative stability of our financial markets and of the shekel, most evident during the last few weeks in which general concerns about emerging market countries have led to significant currency depreciations and sharp stock market declines in other countries. this is an impressive performance. but we need to set it in perspective. it was only in 2005 that per capita income in israel returned to its level in 2000. if we are to move beyond our current status, where our income level is about that of the poorer european countries, below spain, above portugal, close to that of greece, we need to keep growing, and rapidly. per capita income in israel is about $ 18, 500. if the economy grows at 5 percent for the next decade, we will reach a per capita income level above $ 25, 500. that would make a real difference to our standard of living and our ability to contend with the range of issues facing us, including poverty, and the security situation. what would it take to keep the economy growing at a rapid rate for a prolonged period? first, a factor that is beyond our control : the global economy needs to keep growing. second, a factor that is partly under our control : our security situation. standing here, on the eastern side of jerusalem, with a view behind us to the west bank, we must be aware of our need to find a way to live with our palestinian neighbors. third, a set of factors that is entirely within our control : our own economic policies. we need a general approach to economic policy that relies primarily on markets to allocate resources, while recognizing the essential role of the state, especially in the provision of public goods. at the same time, we need to accept the fact that no small economy can flourish except by integrating into the global economy, as israel has so successfully done over the past fifty years. indeed, the opening of the capital account in the last fifteen years, the end of foreign exchange controls, has had a profound and positive effect on the entire economy. in macroeconomic policy, we need to maintain the fiscal discipline that has served us so well for the past three years. we still have a government debt to gdp ratio that is too high and that makes us vulnerable to any serious loss of confidence in the israeli economy, by israelis and by foreigners. to reduce the debt to gdp ratio we