jorg asmussen : reintegrating financial markets speech by mr jorg asmussen, member of the executive board of the european central bank, at the general assembly of the european savings banks group, berlin, 14 june 2013. * * * gentlemen, thank you for inviting me to speak today. let me start by reviewing briefly the overall economic situation in the euro area. we are currently projecting a gradual recovery in economic activity, with the economy expected to stabilise this year and then grow by 1. 1 per cent in 2014. underpinning this outlook are, first, receding tensions in financial markets, notably the disappearance of the debate about the reversibility of the euro. and second, a more robust global recovery, mostly fuelled by emerging markets, but also by promising signs from across the atlantic. our projections for inflation show an increase of prices of 1. 4 per cent in this year and 1. 3 per cent next year. most importantly, inflation expectations as securely anchored. hence, we see no upside risks to price stability at the moment. however, this overall picture conceals considerable divergence within the euro area. this is visible in the very different economic and employment situation between member states, but also – as you know well – in financial market conditions. financial markets are still showing a considerable degree of fragmentation creating very heterogeneous financing conditions across the euro area. this means that, as savings banks from across europe, you will probably have quite different concerns. for some, i expect the main concern is constrained access to funding and too high interest rates. for others, it may be excess liquidity and too low interest rates. and both sets of concerns are valid : tight money is constraining growth in peripheral countries, while easy money could eventually pose long - term risks in core ones. i therefore want to focus my remarks today on how we can deal with this problem of financial fragmentation, because it is a key issue in all parts of the euro area. i would like to approach the topic from three angles : first, the role of governments. second, the role of the ecb. third, the role of banking union. 1. dealing with financial fragmentation : the role of governments i begin with the role of governments because it is important to stress that they have the first responsibility for dealing for financial fragmentation. while there is much media focus on ecb actions and banking union, it is only really governments that can deal with the root causes of the

sufficient. finally, let me say a word on direct bank recapitalisation by the esm. there are various misconceptions about this instrument, such as that it opens up the possibility for debt mutualisation through the backdoor. that is absolutely not the case. recapitalisation through the esm will come only after, first, shareholders and creditors have been written down, and second, the beneficiary member state has absorbed all incurred and expected losses based on a rigorous economic evaluation. so the prospect of losses for the esm is limited. 4. conclusion let me now conclude. i have shown today that tackling fragmentation requires action of all fronts : from governments, from the ecb, and from the euro area as a whole through building banking union. the challenge is now to build consensus behind such action, particularly banking union. and the case is clearly a strong one. for countries in difficulty, financial reintegration is essential to reduce interest rates for borrowers and restart growth. for those doing well, it is essential to raise interest rates for savers and prevent future distortions. i therefore hope that you, as savings banks from across the euro area, will form a key part of this constituency. thank you for your attention. bis central bankers ’ speeches