rojo ’ s main achievement as governor was his contribution to spain joining the euro as a founding member. in this tribute to his memory, i would like to dedicate this opening address to sharing with you some reflections on the difficult and complex situation the euro area is now facing, on the economic policy lessons we should draw and on some of the measures adopted and those yet to be taken, all of which show that we are, i believe, learning something. we are all mindful of the critical times european integration is facing ; times so different from the first 10 years of the euro, in which the single currency provided all member states with extra stability and defences against all types of shocks. today we face a large - scale crisis, a situation in which we could well use the analytical quality and rigour of figures like angel rojo to correctly gauge the economic policy measures needed to exit the crisis. various causes have led to this situation. but, if you will excuse my simplification, these may be grouped in two main blocks. on one hand, a lack of understanding by the member states of the consequences of belonging to a monetary union, which translated into the adoption of national economic policies inconsistent with the framework adopted in 1999. on the other, a series of weaknesses in the european governance structure which have been progressively highlighted as the crisis has widened and deepened. bis central bankers ’ speeches the diagnosis of the relative role played by national economic policies in the unfolding of the euro crisis is still subject to some controversy. but it would be reasonable to say that the lack of fiscal discipline has been a central factor, given the leading role the debt markets have played in the origin and transmission of tensions. as we learned, the fiscal discipline rules of the stability and growth pact were insufficient to ensure the budgetary rigour needed for the normal functioning of a monetary union without fiscal union, and accorded governments an excessive degree of discretionality. hence, there was a failure during the expansion years to adopt fiscal measures that would have provided greater room for manoeuvre to face the crisis. the crisis also highlighted the interrelatedness which, at times of tension, arises between the three sides of the triangle comprised of sovereign risk, banking risk and the economic fragility stemming from the build - up of macroeconomic imbalances. once one of these factors is activated, there is a serious danger feedback loops will be set in train that do but exacerbate and deepen the crisis.

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