make banks ’ shareholders and investors more prudent and will better protect european taxpayers from any misbehaviour by banks. that said, the best way to prevent crises in the future is to make sure that our economies are prudently managed and that we don ’ t let financial imbalances develop, as was unfortunately the case before the crisis. 4. the biggest challenge that cypriot banks have to face today is how to manage and resolve the extremely difficult and sensitive issue of loan servicing … the cypriot economy needs a functioning banking sector which contributes to the economic recovery. that can only be achieved if the non - performing loan issue is addressed forcefully. for that, the structure of incentives would have to be changed, so that both borrowers and lenders have a common interest in finding a pragmatic solution to the debt problem. the data tell us that this is not happening. conversely, non - performing loan levels are continuing to increase. the reform of the foreclosure process is part of the change that has to come about. in this respect, i welcome the supreme court decision on the unconstitutionality of the four parliamentary bills concerning the foreclosure law. this will help to contribute to the reduction of non - performing loans in the banking system and recreate margins of manoeuvre for banks to extend loans to profitable projects supporting the recovery. bis central bankers ’ speeches 5. the cypriot economic adjustment programme was well on track until recently. however, when political decisions touch upon legal reforms, such as foreclosures and privatisation, delays arise amid reactions … the work of the cypriot authorities and their commitment to the programme has been commendable. those measures were painful and they have imposed a large short - term cost on the economy and cypriot society. but they have started to pay off. they have helped to stabilise the economy and to improve the confidence of international investors. institutional and legal reforms are fundamental to enhancing the business environment and boosting economic growth and job creation. this raises difficult political discussions in cyprus, as in any country, but such discussions are nonetheless indispensable, as this is about changing the business model of the cypriot economy, and we are in a democratic society. 6. policy in the euro area is characterised by the lack of a common approach, given that the ecb is willing to proceed, if necessary, with further monetary policy easing and has called on those governments that have room for manoeuvre to loosen

markets union would lead to deeper and more diversified sources of financing for european businesses and households. for that to happen, financial market regulation first needs to be further harmonised. however, applying the rules of civil law should not be mistaken for financial regulation. and the completion of the banking union, notably through the creation of a european deposit insurance scheme, would make the euro area banking system safer while promoting healthy competition among banks. third, a clearer understanding of the delineation of responsibilities between the national and eu levels would improve political accountability and legitimacy all round. this is well reflected in two important political principles identified in the werner report. werner argues that the degree of european integration should be proportionate to the objective, and that any transfer of power to the eu level should go hand - in - hand with a corresponding transfer of parliamentary responsibility. so far, the political dimension of the eu ’ s integration has been the most neglected. shifting competences to the european level needs to be accompanied by further political integration and democratic accountability. ensuring that everyone plays by the same rules is an important component of our european democracy. the eu is built on the principles of equal and fair participation in economic and political life, which can only be guaranteed through strict enforcement of the rule of law. any shift in powers to the european level must not come at the expense of the representation of eu citizens. in particular, democratic participation at the national level cannot simply be replaced by indirect participation at the eu level. if public risk - sharing, for example, is to become a permanent feature, the roles of the european parliament, the european commission and the council would have to be reviewed. these are constitutional issues that would – if we were to go down this road – require a rethink of the fundamental structure of the eu and would ultimately need to be reflected in the treaty. the fact that the crisis response has been designed within the eu institutional framework shows that our framework is flexible. it leaves the eu and its member states scope to tailor policy responses to specific situations. but it also leaves a grey area of blurred responsibilities between the national and eu level. this ambiguity may undermine the eu ’ s full potential. a treaty change, if there were appetite for one, would be an opportunity to incorporate in our common framework the tools used in the last crisis, such as the european stability mechanism. it could also confirm whether the instruments used in this crisis – such as the possibility to issue common debt in exceptional times – would be at the eu