##ties and other assets. the safe asset could also be used as collateral, for example for repo and derivatives transactions across the euro area. 4 / 9 bis central bankers'speeches in principle, several options are available for creating a safe asset. some options are not politically viable, while others may not be economically sound. i am not referring to the type of eurobonds that would replace national sovereign debt as a joint liability of member states, as these would require a deep political union. various proposals have been put forward, but i will concentrate on just two : a variant of the european safe bonds ( esbies ) or sovereign bond - backed securities ( sbbs ) 11 and the e - bonds as proposed in the monti report. 12 the current proposal of the sbbss refers to a tranched, synthetic bond backed by national sovereign bonds. the senior tranche would have very low risk levels, presumably below german debt, as a result of the diversification gains based on historical correlations and of the protection granted by lower - grade tranches. market practitioners and rating agencies have been skeptical about the instrument. their main concern is a perceived lack of diversification to ensure that the senior tranche can be indeed as safe as claimed because correlations among several countries ’ debt could increase in a stressful situation ( as occurred during the financial crisis ). also, it may be difficult to sell the junior tranche at coupons that do not fatally compromise the overall economics of the synthetic security issuance. indeed, if the junior tranche had to be placed at a relatively high coupon, then the senior tranche would need to offer a lower coupon than bunds, a doubtful selling prospect. this would likely render the economics of the sbbs as unviable, which would be very unfortunate. these obstacles could be overcome if, for instance, a small first loss tranche were to be covered by public guarantee, jointly provided by member states. such contingent liability could be limited to a reasonable level. the success of the synthetic european bonds would have significant benefits for financial integration and for the banking and capital markets unions. alternatively, a european entity could issue e - bonds as a pure securitisation of sizable amounts of national sovereign bonds but with a preferred creditor status over national sovereign bonds. such a structure would be less efficient and could increase the cost of issuing the nonpreferential part of national debt that is not included in the securitisation. however, this

of existing efsf resources in order to increase the fund ’ s ability to act. but perhaps the most significant development, relative to past expectations, is the implementation of root - and - branch reform programmes in a number of euro area countries. bis central bankers ’ speeches one should not underestimate the significance of eu - imf programmes for structural changes in some economies. they are dealing with long - needed pension reforms, opening up closed sectors of the economy, modernising public administration. in terms of collective economic management, this development goes further than many federations. can we imagine, for example, the u. s. federal government requiring a similar depth of reform in california? countries outside of eu - imf programmes have also implemented major reforms. spain has recently passed a constitutional balanced budget amendment, disproving the view that major policy changes are impossible in an election year. italy has agreed to a technocratic government to ensure structural reforms are implemented, and invited the imf to give extra credibility to this process. all euro area countries, except those under a programme, have committed themselves to bringing their budget deficits below 3 % of gdp by 2013 at the latest. overall, the forward commitments of euro area countries to fiscal sustainability go far beyond what has been agreed in the u. s. or japan. each of these measures, seen individually, may not represent the “ shock - and - awe ” or “ big bazooka ” that some commentators and markets participants call for. but when seen collectively, they represent a comprehensive broadening and deepening of euro area economic governance. and relative to a reasonable benchmark – the status quo ante – they are very significant developments. it is also worth noting that many steps have been taken to strengthen the financial sector regulation and supervision. under the leadership of the g20, a remarkable amount of work has been done by the financial stability board ( fsb ) and the basel committee in a demanding timeframe. profound regulatory reforms need to be implemented to address the underlying deficiencies that have become apparent in our financial system. in general, europe is exceeding international benchmarks in implementing these reforms. the commission issued a proposal in july 2011 aimed at transposing the basel iii framework into eu law. by doing this, it is among the first to introduce the basel iii framework and is taking a leading role in delivering on the g20 commitments. in line with basel iii, the commission ’ s proposal ( so - called crd iv ) provides