of eu member states - not inevitably lead to a gradual transfer of competencies to brussels? is this what is meant by “ political union ” - an increasing centralisation of policy decisions? i should think not. allow me to give you two examples. first, i would not consider it advisable to centralise employment or social policies at the eu level ; rather, decisions should be taken at the national, regional, or even local level to allow for the necessary flexibility to adjust in the context of the specific constraints of the single currency. second, it is questionable as to whether a centralised “ federal ” fiscal policy would be the appropriate means to support the ecb ’ s single monetary policy. instead of such brussels - steered policies aimed at “ levelling out ” national or regional differences within the euro area, the current system appears more appropriate. today, national fiscal policies are subject to basic common rules as laid down in the stability and growth pact. these rules, although constraining, are in fact a means of preserving a certain margin of manoeuvre in the member states ’ budgetary policies, while at the same time avoiding undue pressure being exerted on the single monetary policy. as shown by these examples of economic policymaking, i would argue that making the euro a success does not necessarily call for the creation of a united states of europe or some sort of “ european superstate ”. in fact, the economic governance of the euro area - although there is certainly scope for improvements in terms of efficiency, effectiveness as well as legitimacy - could be seen as exhibiting essential features of a multi - levelled european polity. such a political edifice would be based on a respect for the subsidiarity principle and a clear assignment of policy responsibilities and objectives. at the end of the day, and i should like to make this clear once more, the task of shaping the future constitutional evolution of the european union, and of determining its “ finalite politique ” is a matter for the politicians and the citizens of europe - and not for central bankers. having said that, the euro is certainly one parameter in this process. a currency has always been a powerful symbol of identity, and this will also be true for the euro. particularly from the beginning of 2002 onwards, when the euro will be in the pockets of some 300 million european citizens, our common currency is set to become a symbol of a shared identity which brings the reality of europe into everyday lives. conclusion

crisis economic growth in countries with bank - based systems lags behind that of countries with more balanced financial systems. 3 the clear policy message is that it is better to finance the real economy through several channels rather than to rely on just one. capital markets in particular can act as a useful “ spare tyre ”. 4 that is why the esrb fully supports the capital markets union, which aims to remove barriers to the development of capital markets. removing these barriers will foster changes in the structure of the financial system in europe. in fact, capital markets and other non - bank sources of external finance have been growing relative to banks. 5 this growth should improve firms ’ access to funding, and ensure that any losses are dispersed more widely. low bank profitability the overbanking in europe, highlighted in the asc ’ s report, is also a factor in the currently low 1 / 4 bis central banker's speeches level of bank profitability. a number of reasons have been mooted as the causes of this low profitability, including low interest rates. long - term real interest rates have been falling in the major advanced economies for two decades. technological change, demographics, income inequality and safe asset scarcity are just a few of the factors exerting downward pressure on long - term real rates. 6 accommodative monetary policy by the european central bank and other major central banks, acting in accordance with their price stability mandates, has also contributed to low interest rates. low interest rates tend to squeeze net interest margins owing to downward rigidity in banks ’ deposit rates. 7 but overbanking is also a factor in the current low level of bank profitability. overcapacity in some national banking sectors, and the ensuing intensity of competition, exacerbates this squeeze on margins. such over - capacity also means the sector does not operate at the efficient frontier, which is one reason why cost - to - income ratios remain high in some countries. at the same time, banks benefit from revaluations in their fixed income portfolios. moreover, profitability is boosted by a greater flow of lending and lower loan loss provisions than would have occurred in the absence of accommodative monetary policy. analysis by the ecb suggests that these effects tend to outweigh the impact on net interest income over the short term, but the picture varies depending on banks ’ business models. 8 in the broader context of generalised overcapacity and technological innovation, some banks