europe and also protect monetary policy by containing economic divergence. the recently published “ five presidents ” report on the future of the euro area underlines the importance of capital markets with regard to strengthening risk - sharing arrangements, too. the report also proposes establishing a fiscal risk - sharing mechanism in the longer run. but extending common liability would have to be balanced by a commensurate shift towards european control ; otherwise, the incentives for fiscal prudence will get out of kilter. here, the sequence is of the essence : shifting fiscal control and intervention rights to the european level must come first ; after that, the mutualisation of liability may follow. but let ’ s be frank here – the greek drama has eroded public and political support for further transfers of national sovereignty to the european level as it has raised doubts over some parties ’ determination to assume their responsibility for preserving european monetary union as a stability union that is firmly grounded on a set of commonly agreed rules. so it ’ s crucial for further solidarity to be linked to a strong conditionality and for agreements to be adhered to. this holds true not only because the root causes of the greek problems will otherwise never be fixed, but also for the stability of monetary union itself. by the same token, a european deposit insurance system seems feasible only if the policy areas that influence the health of banks are european responsibilities. otherwise, it will open the door to a situation in which the burden of bad national policy choices can be shifted to all europeans creating severe moral hazard problems. 4. the sovereign - banking nexus ladies and gentlemen, strengthening capital markets will bring about tangible benefits only if we reduce barriers to their functioning, not if we introduce new distortions to shift activity from banks to markets. by the same token, the regulation of banks will produce lasting success with regard to fostering financial stability only if we harness the disciplining forces of the market. implicit subsidies and bail - out expectations have to be a thing of the past. as bank of england governor mark carney has put it : “ to make the system fairer, the days when banks privatised gains but socialised losses must end. ” eventually, this means tackling the overly tight embrace of banks and sovereigns, as this compounds the issue of systemic relevance. the basel iii liquidity and capital requirements as well as the recently introduced resolution regimes are major steps towards cutting off the channel of contagion from banks to sovereigns. in europe, the banking union that includes the

amando m tetangco, jr : the philippine economy – building resilience in a time of uncertainty speech by mr amando m tetangco, jr, governor of the central bank of the philippines ( bangko sentral ng pilipinas ), at the economic forum “ philippine economic outlook – prospects and challenges ”, hosted by security bank, manila, 11 february 2009. * * * distinguished officers and staff of security bank led by its chairman mr. frederick y. dy, president and ceo mr. alberto s. villarosa, other distinguished speakers, guests, ladies and gentlemen : good afternoon! it is my pleasure to join you for today ’ s economic briefing. i laud the efforts of security bank for making this gathering possible. i welcome opportunities such as this to help shed light on our current economic and financial environment, from the vantage point of the central bank, which i hope is not far removed from how it is in the “ real ” world. much has already been said and written about the current environment we are in – it has been described as being “ a tsunami of historic proportions ” to being the “ the worst crisis since the 1930s ”. every writer or speaker seems to want to paint a picture direr than the one before. today, i don ’ t want to be included in that list – rather, i hope i can more candidly share with you a balanced ( realistic ) view. let ’ s begin with what we now know against what is still uncertain. three things stand out. first, we have clearly seen that, on the one hand, the crisis has moved from its epicenter – the us and europe – and has begun to manifest itself in emerging markets, including our part of the world. on the other hand, however, we don ’ t know how much further or deeper the crisis ’ reach and breadth would be once the dust, as they say, finally settles. second, so far the policy prescriptions from the major economies have been “ unconventional ” – untested ( so to speak ) in these unchartered territories we now trek. unfortunately, the very nature of these prescriptions requires patience not only from those in the major economies but also from those at the periphery such as the philippines. the policy prescriptions clearly need time to filter to the markets and achieve the necessary effects. question is, how much patience and tolerance do the markets have? other questions that are perhaps racing in stakeholders ’ minds are :