our credibility. the eurosystem clearly stands in the tradition of best practice in central banking – as exemplified by the bundesbank prior to the introduction of the euro. the eurosystem ’ s twopillar monetary policy strategy inherited the concept of the bundesbank monetary pillar – which my own previous institution, the banque de france had also chosen in january 1994 as soon as it became independent. the eurosystem ’ s two pillar strategy is built on the conviction that, in the medium to long term, inflation is a monetary phenomenon and that independent central banks have the strategy and the instruments to achieve price stability. the eurosystem ’ s track record proves that this important insight translates one for one to the monetary union context. i would like to take this opportunity to also express my gratitude, not only to axel weber but also to all bundesbank staff, for the commitment shown on a daily basis during the past twelve years and in particular during the financial crisis. the governing council of the ecb knows and highly appreciates the crucial contribution of national central banks to the smooth functioning of monetary union. the financial crisis has made more visible to a broader public the essential tasks that national central banks carry out day by day within the eurosystem. for the sake of brevity allow me to focus here on two such activities, and i am fully aware that there are many other tasks that equally deserve our full recognition. on both bis central bankers ’ speeches dimensions, the eurosystem benefited enormously from the bundesbank ’ s dedication to our common cause, and on both dimensions the bundesbank contribution found in axel its voice. the first task is financial supervision, the importance of which cannot be underestimated. for one thing, the information gathered in supervision has been particularly useful in the preparation of monetary policy decisions during the financial crisis. this has been especially true when and since the governing council of the ecb decided to introduce non - standard monetary policy measures to ensure the proper transmission of the monetary policy stance. the information also helps the governing council of the ecb assess the interconnectedness of national financial systems and vulnerabilities threatening financial stability in the euro area as a whole. in this context the bundesbank has done a crucial job in containing the fallout from the financial crisis. after the collapse of lehman brothers immediate and determined action was crucial to avoid a meltdown of the financial system in germany and the other euro area countries. the bundesbank under

similar and similarly funded system of welfare. these are all things which the euro area does not have at a supranational level — or, at least, not to anything like the same extent. there are some — mainly on the continent — who regret this because it means that economic convergence cannot be created or, at least, actively promoted by a centralised policy. others — and i suspect that the overwhelming majority of the british people belong to this camp — believe this to be a good thing. europe should not be a dominant centralised entity, nor should it have an egalitarian public - sector system of adjustment. it should be decentralised, organised on the principles of subsidiarity and geared to competition. your prime minister put this in a nutshell : “ integrate where necessary. decentralise where possible. ” i would add that i have a great deal of sympathy for that position. however, one also has to see the other side of the coin. one problem remains : how can a politically decentralised monetary union safeguard the necessary lasting convergence of all its member states? ultimately, there is only one way of doing this. safeguarding lasting convergence in a politically decentralised monetary union must rest on two pillars : firstly, on each country ’ s own sustained competitiveness and on each country ’ s own efforts ; and, secondly, on a fundamental willingness to accept certain binding rules and abide by them on a permanent basis. that is the only way in which a monetary union with a decentralised political structure can succeed — not only economically, but also politically : in other words, without excessive conflict among the participating countries. iii the competitiveness of each single country is obviously initially one economic condition for a kind of optimum currency area. basically, an optimum currency area means that, in the longer term, there is no need for adjustment of the nominal exchange rate because other adjustment mechanisms are effective, say, as a result of internal flexibility or a high degree of labour mobility. that is clear in theory. in practice, there is a fundamental problem : how can the ability to “ keep up ” be assessed? and how is it possible to safeguard that ability and the willingness to utilise it on a lasting basis? now, in some way or another, the track record and the basic situation in the countries concerned have to be taken into account. the maastricht treaty does that and stipulates convergence criteria for that purpose. these