jean - claude trichet : la gouvernance de la zone euro speech by mr jean - claude trichet, president of the european central bank, at the notre europe seminaire en hommage a tommaso padoa - schioppa, in the session “ quel bilan pour l ’ union economique et monetaire ”, brussels, 4 april 2011. * * * ladies and gentlemen, let me begin by thanking notre europe and the egmont institute for the invitation to this conference today in honour of tommaso padoa - schioppa. tommaso was a man of culture, a man of vision and a man of action. i had the privilege, during a great number of years, to work close to him in different positions and then to work with him in the executive board of the european central bank. in the executive board he did marvels, particularly in the area of international relations where his tireless activity permitted many advances, in the domain of payment systems in which he had acquired in basel the best global expertise, and in the crucial dimension of financial stability where his diagnosis on our global and european institutional weaknesses proved unfortunately to be prophetic. but, overall, tommaso was a european, a militant of the european union ’ s historical endeavour. and although it is with a heavy heart, it is inspiring to speak on a subject that was so dear to him and so central to his life ’ s work. let me also remind us that i am in the purdah period, and nothing i will say can be interpreted in terms of future monetary policy. we all know that the chinese leader zhou enlai, when asked in 1971 about the impact of the french revolution, famously replied that it was “ too early to tell ”. what zhou enlai confirmed in this comment is the difficulty of making assessments of historical processes at a particular point in time. there is always a risk of being too influenced by the circumstances of the present. this can lead to judgments that lack an appropriate, encompassing perspective. the same remarks apply when assessing emu at a particular point in time. to avoid the trap of being over - influenced by the present, a broader framework for assessing emu is needed. to this end, i would like to draw on a framework put forward by french historian fernand braudel. in his seminal study of the development of social structures in europe, braudel identified three levels of time

. this is undoubtedly the case of funds channeled to firms by an institutional investor through securitized instruments created, for example, by a special purpose vehicle, exactly the type of non - bank financing invoked by the previous passage. can the two requirements be reconciled? as in every trade - off between risk and opportunity, it is a question of curbing the former without sacrificing the latter. by weakening banks, the crisis has shifted the axis of the financial system in the advanced countries from credit intermediation to the markets, from a bank - based to a market - based structure. the partial withdrawal of the banks, forced by more stringent rules and the cyclical downturn to deleverage, has not only prompted an increase in firms ’ direct funding in the markets, through bond issues, but has also made room for other intermediaries, driven in turn by the need to provide their investors with acceptable yields in a world of very low or nil interest rates. bis central bankers ’ speeches this development certainly entails a danger for financial stability. if part of the traditional credit function is diverted in practice to channels that are “ in the shadows ” with respect to supervisors ; if the actors are willing to take greater risks to achieve higher yields than those corresponding to today ’ s highly accommodative monetary conditions ; if they are free to do so because they are untrammeled by rules and controls, the experience of the global crisis of six years ago teaches that systemic instability is just around the corner. nevertheless, the real economy does need finance. above all when it is a question of getting stagnant economies moving again, any financial instrument or institution that can effectively deliver funds to entrepreneurs with technological and business projects, especially innovative ones, is welcome. the eurosystem recently announced a vast programme of purchases of asset - backed securities based in part on bank loans to smes. the obvious solution to the dilemma lies in extending the perimeter of supervision to institutions not now encompassed. this is an arduous task, necessitating a high degree of international cooperation, given the cross - border interconnections and the associated opportunities for regulatory arbitrage, and requiring regulators to keep up with incessant financial innovation motivated in part precisely by the desire to escape controls. this is the task that the g - 20 assigned in 2009 to the financial stability board, whose past achievements and likely future progress were discussed in the meeting in cairns. “ finance for growth