are not exposed to too many dangers? if we want growth and job creation to be sustainable, thanks to price stability, interest rates themselves have to move. borrowers know that interest rates can go up as well as down. greek citizens are paying considerably higher interest rates than other euro countries citizens. why do you think this is happening? is competition not working in the banking system? we in the governing council, including lucas papademos, our vice - president, and nicolas garganas, the governor of the bank of greece, are calling for financial integration to be as complete as possible. in certain domains we can be reasonably satisfied, in others progress has to be made. it is clear that in retail banking progress must be made. we see that, even with the same currency and monetary policy, there are differences in the level of interest rates. but you also have to take into consideration that these interest rates are incorporating the credit risks of the loans. so one can understand that there might be some remaining differences. the competitiveness of the greek economy is low. what measures would you suggest to improve it? in many respects the whole of the euro area has exactly the same characteristics and can receive the same recommendation as greece itself : structural reforms are necessary. we need reforms that permit goods and services markets to be more flexible, to function better and to be more fully integrated in this vast continental economy which is the euro area. flexibility is also needed in the financial markets. financial integration should be completed and it is very important for the efficient functioning of the euro area. labour market improvements also have to be taken into account if we want the whole economy to be competitive. i would draw particular attention – and i am not talking particularly of greece, but of the entire euro area - to fiscal policy which has to respect fully not only the letter but also the spirit of the stability and growth pact. meaning that in good times one should save money for the bad times. we also have to follow the unit labour cost carefully. because unit labour cost is one of the important indicators to measure overall competitiveness. what is your comment on the rapid decrease of the german deficit level? it is very good that the german government has expressed its full commitment to strictly fulfil the stability and growth pact. this resolute commitment is very positive for germany and for europe as a whole. has the new government made a difference? as you know, we are issuing the currency and preserving price stability for all, for

both the forest and trees ” 7 effectively ; there is a need to have a wide range of measures and tools covering different aspects of systemic risks. the objective is to develop a diagnostic tool that simultaneously traces the development of macro - financial conditions which pose risks to financial stability and identifies point in time risk conditions, while also assessing the joint impact of all these risk factors on systemic stability. a host of quantitative models attempting to incorporate one or more of these elements have emerged in the policy and the academic arena since the crisis. the models variously attempt to quantify the contagion risks in the financial system, to capture distress dependencies amongst financial institutions or to measure the systemic importance of financial institutions. others attempt to develop early warning indicators while yet another class of models aim to utilize aggregate information from segments of the financial system to develop coincident indicators of systemic stress. yet another set of models – the macro stress tests – try to measure the resilience of the financial system or its key components to various stress factors by quantifying the link between macroeconomic variables and the health of either individual financial institutions or the financial sector as a whole. the emerging models vary in statistical techniques used as well as in the type of available information used. they range from general equilibrium to game - theoretic models and can be either comparative static models or dynamic models. some models attempt to assess systemic risks using credit risk conditions while others rely on data from financial markets. the development of these models is in a nascent stage and the learning curve is very steep. identifying and assessing systemic risks requires a broad and deep information basis and a wide range of tools to process the relevant information as well as analytical tools and techniques. while fertile research on these issues is underway, especially since the crisis, the progress has been slow given the large mass of uncertainties – both “ known ” and “ unknown ”. let me briefly highlight some of these. first, while the notion of systemic risks is clear, there is, as yet, as elucidated earlier, no universally accepted definition of systemic risk. further, there is little agreement amongst regulators and academicians about the best way to operationalise a framework for the identification and measurement of systemic risks. the associated issues are further complicated by the fact that systemic risks are inherently unobservable. the main factors resulting in systemic risks – contagion risks, imbalances, etc., are also difficult to observe and / or quantify. adding to the difficulties are the