market have renewed due to doubts of the solidity of the fiscal positions of some countries. moreover, market participants have realised that the loops of the knot between the public sector and the banking system in some countries have become tighter, not looser. this emphasizes the need for fiscal consolidation that is disentangling the knot. 3. firewalls : a “ sword ” for cutting the knot? this characterization of the systemic component determines the rationale for a firewall and its design. simply by building confidence, a firewall can prevent or mitigate contagion without actually having to be triggered. if triggered, it can help to prevent a country ’ s liquidity problem from turning into a solvency problem. moreover, it can buy time and serve as a tool for commitment to implement necessary reforms. no doubt : a large and effective firewall can reduce the likelihood of being triggered. however, the major issue here is the risk arising from simultaneity of payouts. the greater the simultaneity, the less credible a firewall can be, because it cannot cover the financing needs of all countries simultaneously. thus, a firewall is limited by the capabilities of the individual contributors. in a crisis characterized by having a systemic component with a high degree of market integration and loops between the public sector and the banking sector the probability of coincident payouts seems to be high. proponents of a firewall to act as a “ sword ” for cutting the knot seem to ignore this fact. the challenge is considerably more complex. it requires a design that balances the confidencebuilding effects of an availability of sufficient funds where this is needed with the possibility that simultaneous payouts can overburden contributors. moreover, an appropriate design of firewalls has to take moral hazard considerations into account. in this context, moral hazard is a serious problem. as policies needed to generate a long - term solution are subject to complicated political processes, the political incentives to not follow through on those solutions can be strong. this would undermine what i consider to be the essential benefit of a credible firewall : its potential ability to encourage prudent economic policies. to summarize, financing by means of firewalls is no substitute for restoring solvency – or to go back to my original metaphor – it is not an effective sword for cutting the knot. this can bis central bankers ’ speeches only be achieved through economic adjustments and structural reforms, in which case a firewall may well be helpful. 4

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ narodna banka slovenska communication section opening remarks by mr jozef makuch, governor of narodna banka slovenska at the conference 10 years of the €uro in slovakia international conference to mark the 10th anniversary of the introduction of the euro in slovakia bratislava, 11 january 2019 dear deputy prime minister kazimir, dear mr mersch, our honoured guest from the ecb executive board, dear governors, ladies and gentlemen, it is my great pleasure to welcome so many distinguished guests to this conference, organised to mark the 10th anniversary of euro adoption in slovakia. ten years ago, when we were just switching to the euro, or even 15 years ago, when we started preparing for euro accession, we believed this would be the pinnacle of our integration process. we were coming from a small emerging market economy with volatile capital flows and unexpected foreign exchange pressures. we were looking forward to becoming part of the world ’ s largest economy and the second most important global currency. it turns out we have got both more and less than we expected. on the one hand, we got not only a monetary union, but also a banking union, soon a capital markets union, and to some degree also a fiscal union. ten years after our euro area entry, and ten years after the outbreak of the global financial crisis, the european monetary union is more complete than ever but still needs a lot of work. i am sure many of our distinguished speakers will be discussing what needs to be done to bring it to completion. narodna banka slovenska, imricha karvasa 1, 813 25 bratislava, slovak republic www. nbs. sk on the other hand, we also got less from the changeover than we hoped. no matter how happy the wedding, there will always be rough patches in the marriage : every union requires constant efforts from the partners to function well. the debt crisis in some euro area countries has shown us that the euro is still vulnerable to shocks. from a domestic perspective, not all the expected benefits of the euro have fully materialised. one reason is that the crisis slowed our convergence towards the most developed economies. another reason is that the global