is already working towards that goal. 3. some thoughts on the most recent backslide on the financial markets i could have closed my speech with this rather positive outlook not even two weeks ago. however, since then the crisis has again raised its head, this time exposing the weak position of government budgets in some euro - area countries. at first sight, the current problems seem to be rather different from what we experienced during the financial crisis. however, a second glance reveals that the underlying causes are quite similar, and so are the remedies. just like the financial crisis itself, the current problems can be traced back to a limited number of factors. first, a credit boom due to lower interest rates once the countries in question had joined the euro area. second, insufficient or totally absent risk management in economic policy, which should have been much more countercyclical. and third, the stability and growth pact was not applied as strictly as it should have been, or was weakened by questionable accounting practices and faulty statistics. given these similarities with the root causes of the financial crisis, the responses of economic policy are similar, too. the first challenge has been to stabilise the situation. the relevant steps towards that goal were taken by the eurosystem and the ecofin ten days ago. in particular, the commitment of fiscal policy to stepping up frontloaded consolidation efforts shows the will of the member states to tackle the current crisis at its root. what must follow are structural reforms in a similar vein to those that i have just described with regard to the financial sector. it is essential to strengthen the existing fiscal rules to prevent individual countries from running into budgetary difficulties. relevant proposals to enhance the stability and growth pact have already been put forward. they could be complemented by national fiscal rules similar to the national debt brake in germany. in addition, we might – over the medium - term – also think about devising mechanisms to limit the systemic impact of sovereign debt crises that might still occur. however, particular caution is warranted in this regard given that adverse incentive effects would most likely be even more severe than in the financial sector. for example, a permanently available support scheme would only exacerbate these problems and therefore should not be a policy option. 4. conclusion ladies and gentlemen three years into the crisis, the necessity for a reform of financial regulation has been well understood at a global level. until now, a number of relevant proposals have been put forward by international bodies such as the financial

not also involve surrendering national sovereignty – because if liability and control are not in step, the basis for monetary union will be undermined. will the ecb become a superpower if, from 2014 onwards, it has responsibility not just for price stability but also for supervising europe ’ s 200 largest banks? let me say first of all that we at the bundesbank regard banking union in principle as a very important and appropriate step in the process of strengthening the future institutional framework of monetary union. the purpose, amongst other things, is to put in place effective supervision and a strict regulatory framework which will loosen the current close links between the risks arising in a country ’ s public finances and the health of its banking system. when important decisions like this are being made, careful planning should take priority over speed. in our view it is particularly important to prevent conflicts of interest between banking bis central bankers ’ speeches supervision and monetary policy. i do not regard this issue as having been satisfactorily resolved yet. can the planned mediation panel resolve the problem? there are to be three bodies looking after banking supervision in future, starting with the supervisory board, which will operate within the ecb and prepare decisions for the ecb governing council. the governing council will only be able to simply reject or accept these decision - making proposals – it will not be able to amend them. i find this curious : if i am to bear political responsibility, i have to be able to shape the decisions. but that is not all : if the ecb governing council rejects a proposal from the supervisory board, and one country does not agree with this decision, then a third body comes into play – the mediation panel. this mediation panel then decides by simple majority. but the panel ’ s decisions cannot be binding : under the relevant eu legislation the ecb governing council has to have the final say. sounds like a complex construct that makes little sense. why are things being done this way? it is an attempt, using a legal basis which is not really suitable, to erect a chinese wall between monetary policy and supervisory tasks. but it is more like a japanese wall or a room - divider. all this leads to is a very complex system in which the lines of responsibility are blurred. in my view, it would be preferable to amend the eu treaties with a view to putting in place robust separation between monetary policy and supervisory decision - making structures. isn ’ t such a separation at the ecb just theoretical anyway?