could be aligned. but this would require a quantum leap in terms of ceding sovereignty to the european level, a leap neither the electorates nor the governments of the member states seem willing to take. if a true fiscal union that requires extensive changes to the european treaties is not on the cards, then we need to take the second avenue. that implies taking concrete steps towards restoring a balance of individual control and individual responsibility within the existing maastricht framework. a framework which is in line with what margaret thatcher once said in her famous speech at the college of europe – that improving the workings of the european union does not automatically require stronger centralisation. individual responsibility requires that sovereigns, banks and investors bear the consequences of their decisions. this means that it is primarily up to the respective government and its citizens to come up with the revenue needed to repay public debt. this holds, in particular, since high levels of public debt often go hand in hand with substantial private assets. but it also implies that the risk of non - repayment ultimately lies with the investors, since they are the ones who reap the return when things go well. and if the fiscal limit has been reached for real, public debt needs to be restructured without posing a systemic threat to financial stability. the introduction of collective action clauses into sovereign bonds was a first step in that direction. but more steps are needed. the bundesbank has put forward a proposal for sovereign bonds to include an automatic maturity extension of three years in case a sovereign accesses the european rescue mechanisms. this automatic maturity extension would allow the sovereign in question to tackle its fiscal challenges while preventing investors from bolting. the amount of official financial support would be reduced, and time could be bought to figure out if the problem is one of temporary illiquidity or insolvency. but ultimately, all these questions boil down to the quip of american economist allan meltzer : “ capitalism without failure is like religion without sin. it doesn ’ t work. ” for the above proposals to work, we need to make sure that sovereign insolvencies are possible without bringing down the financial system as a whole. bis central bankers ’ speeches to that end, doing away with the preferential treatment of sovereign debt in banks ’ balance sheets is of the essence. the current regulatory framework permits preferential treatment of sovereign exposures in various forms. while bank exposures to a single counterparty are limited, in principle, to a quarter of their eligible capital

automatised processes, solutions for complex financial issues, service tailored to customers ’ individual needs. a fundamental challenge that banks now face is that in some business fields, we may expect a sudden and rapid change of the game that is being played. one rather obvious case in point is that of payment services. service providers such as paypal or apple have implemented payment systems geared to consumers in a digital environment. once customers become used to a new way of paying, competitors offering similar products will certainly have difficulties trying to convince customers to switch providers. the pioneer may have a decisive advantage. now, in evolutionary terms, the question is whether banks can adapt quickly enough. banks have used it for decades, but these fast - moving times present wholly new possibilities for its use : p2p lending becomes feasible, internet and mobile applications are sprouting up and bis central bankers ’ speeches internet giants such as google or facebook are cultivating “ big data ” methods. these enterprises have grown up with – at times – entirely new perceptions of business, work and life. and they have the appropriate staff. that may be crucial. it is one thing to build new ideas, but quite another to incorporate them into the company dna. traditional banks, on the other hand, typically do not have a digital dna. theirs is an analogue world in which they have refined their knowledge about banking over decades and built up a customer relationship based on trust. think of areas like investment advice and corporate finance as well as banks ’ own business of generating synergies between business strands. the question now is : what part of their knowledge is still valuable and what part do banks need to reframe? however, we cannot predict how the financial sector will look in ten years ’ time. there are just too many “ unknown unknowns ”. still, there is a recurring fallacy that reduces evolution to a narrow one - way street. if there are new market entrants whose businesses are welladjusted to the digital environment, banks should be inclined to imitate their behaviour. but – to be clear – there is no one - size - fits - all strategy for digital banking. as in other industries, there will always be demand for more differentiated strategies, for example individual and personalised services as opposed to algorithm - based advice. also, we should not be surprised to see the focus return to a key component of the banking business : establishing safety and trust. furthermore, the digital age does not simply redistribu