jens weidmann : towards a more stable monetary union - what is the right recipe? keynote speech by dr jens weidmann, president of the deutsche bundesbank and chairman of the board of directors of the bank for international settlements, at the conference “ economic and monetary union – deepening and convergence ”, linz, 5 july 2018. * * * 1 introduction dear ewald dear president mahrer ladies and gentlemen it is always a great pleasure for me to visit austria. one year ago, almost to the day, i was in vienna to talk about the future of the monetary union. back then, the key issue was how to ensure that the union is permanently preserved as a union of stability. today, we are still dealing with this issue. in fact, it concerns us now more than ever. the meeting of the eu ’ s heads of state or government last week marked yet another milestone on this journey. as austria has just taken over the presidency of the council of the eu, it plays a key role in moderating the reform process. in that sense, we are in exactly the right place to discuss the way forward for the economic and monetary union. i am particularly pleased to be here in linz. since it is my first visit, i am looking forward to tasting linzer torte, the nutty jam - filled cake named after the town. the first recorded recipes for linzer torte date from the 17th century. it is therefore believed to be the oldest known cake recipe in the world. and from the outset, there wasn ’ t just one recipe, but a range of variants with slight differences in ingredients and ways of preparing it. thus, there is one problem that every baker has to solve : which is the “ right ” recipe? when we talk at this conference about the future of economic and monetary union, we are in a somewhat similar position. there are a large number of proposals on the table concerning the future design of the euro area. all proposals share the ambition to make the monetary union more stable and more resilient. but it is an open question which of the recommendations are appropriate to this end. allow me to approach this question in three stages. i will set out with the basic ingredients for a stable union. as you will see, these are largely not in dispute. then i will turn to the institutional framework which, one might say, resembles the fundamentals of baking. finally, i will discuss some recent reform proposals – or specific

- educated population and has relatively good airline and telecommunications connections. an ofc can also have a positive impact on the resident financial sector, through better access to international capital markets and more financial expertise. however, despite these advantages, many ofcs realise that they cannot ignore the growing concerns regarding their role in the international financial system. let me elaborate on the importance of ofcs for international financial stability. note that in our definition, we defined a stable financial system as a system that prevents shocks from having a disruptive effect on the real economy, but also on other financial systems. the latter part of this definition has become more relevant as financial systems have become more interrelated. the importance of ofcs for international financial stability can be illustrated by a few figures. in the first quarter of this year, bis reporting banks ’ claims against ofcs comprised almost ten percent of their total cross - border claims, creating a total risk exposure of almost 400 billion us dollars. these exposures are larger if off - balance - sheet activities are taken into account. in addition, insurance corporations and investment funds also use ofcs. unfortunately, information on these off - balance and non - bank exposures is scarce. two years ago, the financial stability forum identified ofcs as a weak spot in the international financial system. in particular, ofcs were spurred to strengthen their supervision and regulation frameworks and co - operate more intensively with the onshore authorities. subsequently, the imf has been asked to monitor the progress in this area, by carrying out offshore financial sector assessments. for aruba, this assessment was completed in june of this year, and looks very encouraging. after all, only two years ago aruba was classified by the financial stability forum as one of the ofcs with legal structure and supervisory practices of a lower quality. compared to other ofcs, offshore banks and insurance corporations are relatively unimportant in aruba. by contrast, the large number of small, corporate vehicles is of particular interest. actually, almost 5000 offshore corporate entities are registered on the island. up to now, these were not supervised and not very transparent, and therefore represented a potential risk from a financial stability point of view. following the imf ’ s recommendation, however, the central bank of aruba will probably be appointed as regulator of this sector. in particular, the bank will supervise company service providers, which act as legal representatives of the offshore corporate entities. as a motivation for recommending the central bank of ar