, on the one hand, to investors ’ risk awareness. for example, before the crisis, they demanded very low risk premiums from the euro area countries across the board. their risk awareness did not increase until the problems in greece became apparent. on the other hand, this also applies to the possible spread of the sovereign debt crisis via vulnerable banking systems. it was this very problem of contagion that made rescue measures necessary in the first place. up until now, aid to greece has always been justified by the objective of ensuring financial stability throughout the euro area. the bottom line is that public finances also benefit from stable financial systems, because they produce fewer crises that might necessitate government rescue measures. bis central bankers ’ speeches thus, in order to get the sovereign debt crisis under control and create a stable monetary union, the financial system needs to be strengthened and the institutional framework of european monetary union improved. a stable financial system for a stable monetary union of course, strengthening the financial system is an important task, irrespective of the sovereign debt crisis. since the financial and economic crisis at the latest, creating a stable and resilient financial system is a matter of global concern. in fact, a number of improvements have already been made in this context. basel iii has been approved, entailing extensive new rules for banks. the new capital and liquidity requirements in particular will make the banking system more stable. what is important now is to implement these new rules at global and at european level. yet even though much has already been achieved with basel iii, a great deal remains to be done. problem areas at the moment include special rules for systemically important banks and the treatment of previously unregulated segments of the financial system, namely the shadow banking system. suggestions have been made in the meantime, which will be discussed at the forthcoming g20 summit at the beginning of november. my impression of the meeting of the g20 in paris last weekend is : on the whole, we are on the right path. and we should not use up our energy on projects that might divert us from that path. in my opinion, one such project is the financial transaction tax ; for in terms of financial stability, the benefit of such a tax is less clear - cut than assumed, whilst the debate often fails to take the costs and side - effects into consideration. it is quite possible that a financial transaction tax may heighten rather than reduce the volatility of the markets. moreover,

andreas dombret : quo vadis euro area? challenges facing monetary union speech by dr andreas dombret, member of the executive board of the deutsche bundesbank, to the cdu economic council, berlin, 20 october 2011. * * * introduction ladies and gentlemen, thank you very much for your invitation – i am delighted to be able to speak to you today. for more than four years now, we have been plagued by a crisis that has changed its appearance on a number of occasions. it spread from the us property market to the global financial system, from there to the real economy, leading finally to a sovereign debt crisis in several euro area countries. a sovereign debt crisis – let me emphasise this explicitly – that is a severe test for monetary union, but is not a crisis of the euro. the euro is a stable currency, both internally and externally. politicians are at pains to resolve the crisis, yet a consistent approach has been lacking to date. meanwhile, we are losing valuable time and, given the rapidly rising levels of sovereign debt, politicians ’ scope for action is steadily shrinking. at the same time, uncertainty is growing on the markets around the globe and the confidence of the general public is at risk of becoming lost. this makes it all the more important to find a consistent approach to resolving the crisis in order to restore calm to the markets and to maintain the public ’ s confidence in the single currency. in looking for such a solution approach, one that will stabilise monetary union also in the long term, it is worth taking a brief look at the root causes of the current crisis. the causes of the sovereign debt crisis – a brief overview it is generally known that there were unsound economic developments in a number of euro area member countries. above all, these included excessive lending, asset price bubbles and a loss of competitiveness. these structural shortcomings were the breeding ground for the sovereign debt crisis. however, two fundamental problems are directly responsible for the sovereign debt crisis. first, the institutional framework of monetary union was obviously too weak to prevent excessive fiscal deficits. the stability and growth pact lays down rules that are intended to restrict government deficits and sovereign debt. the political will to enforce these rules was lacking, however. instead, they were circumvented and, in some cases, even actively bent. sovereign debt in the euro area could not be contained as a result. second, there were weaknesses in the financial system. this applies