shocks originating elsewhere. there is no longer any need for a cross - border structure for a country to be infected by an external shock. 5 l. bini smaghi ( 2007 ), “ consolidamento bancario, innovazione e accesso al credito, cesifin, florence, 10 december 2007, available at http : / / www. ecb. int / press / key / date / 2007 / html / sp071210. it. html. see also bruegel ( 2007 ) : “ coming of age : report on the euro area ”, bruegel blueprint 4. third, although it is not in principle an optimal model of financial regulation, the recent market turbulence has revealed structural weaknesses in some supervisory systems. in particular, it has shown the need to ensure that the central banks, which are responsible for supplying the markets with liquidity, especially in emergency situations, have all the necessary information at their disposal in order to assess the capital adequacy and sound balance sheets of their counterparties. the ecb had drawn attention to this in the past. 6 finally, the supervisory authorities appear less protected than the central banks from external pressures, which aim to reduce their decision - making autonomy. the concept of independence, which has been developed for monetary policy, is however not easily extendable, merely via regulations, to the supervisory authorities. this, however, also applies to the problem of accountability. 7 in a financial market in which there is room for a certain degree of regulatory competition and in which the supervisory authorities have a mandate and a predominantly national system of accountability, there may be incentives to utilise the margins for manoeuvre that european legislation leaves for protectionist purposes. there may also be disincentives for a proper exchange of information, necessary in order to guarantee the stability of the market. the risk of harming the financial institutions of one ’ s own country and of exposing them to possible acquisitions may discourage a timely transmission of the information to other authorities, especially in periods of financial turmoil. in brief, the developments under way in the financial markets are causing two types of problem to emerge. first, the continual integration of markets increases the inefficiencies resulting from a variety of laws, or applied in different ways in different countries. second, the possibility of applying the laws in various ways reduces the incentives for proper coordination between national supervisory authorities in respect of the prevention and resolution of crises.

firms and households across the euro area. these actions have pulled the euro area back from the very dangerous situation we faced last year. but the crisis of public and private debt in some countries is clearly not over. the recent rise in spanish yields is evidence of this. this is no longer a problem that can be addressed through bigger firewalls or a more active ecb. it can only be addressed through consistent and determined reform, even if it is painful in the short term. in the spanish case the shift in market sentiment is a result of poor communication on deficit targets and delays in announcing the budget. in other words, spain currently has a credibility problem with the markets. but this can be fixed by taking measures to regain credibility. overall, we should not wait for a “ silver bullet ” to end the crisis. it does not exist. the end of the crisis will come only after a series of comprehensive steps taken over a number of years. this means all member states and eu institutions playing their part. let me stress that we are greatly helped in this task by excellent transatlantic cooperation, not least between the ecb and the federal reserve. among other things, the provision of dollar swaps lines has been a key weapon in fighting the crisis since 2007. so the u. s. is also playing an important role in supporting the european recovery. is the european response to the crisis killing growth? this leads into my second question : is the response i just described – fiscal consolidation and structural reforms – killing growth in europe? it is important to understand that we see things differently in europe and the u. s. in our view, strong public finances are a pre - condition for sustainable growth. we see fiscal consolidation as supporting growth, because it creates confidence effects that will support consumption and investment in the future. certainly, the short term effects of consolidation can be negative. we recognise this. that is why we always recommend that consolidation is accompanied by productivity - enhancing structural reforms. this means inter alia opening up closed professions, increasing the efficiency of public administration and improving judicial systems. these are reforms that will bis central bankers ’ speeches ultimately benefit the majority of people, by increasing the growth - potential of these economies. take the example of spain. the labour market reforms i mentioned are essential to increase employment. the spanish labour market has for too long been organised in a way that protects insiders. this is what lies behind the very high rate of youth unemployment. it may be the case that these reforms