and we must demonstrate the ability to solve integration and structural policy problems to boost our international competitiveness. the single currency holds out the promise of fostering european integration in areas far beyond monetary union. of course, this chance manifests that there are many questions about how far political and institutional integration is to progress. we will probably have to wait until the events of the next few years provide us with the answers to these questions. what is certain, however, is that emu is a harbinger of political union within europe - as history shows, national territories and currency areas are, as a rule, identical. for this reason it is fundamentally important that national interests be overcome in favour of a single european policy and that the cooperation between member states on a common foreign and security policy and internal security policy be reinforced. i therefore, welcome the eu ’ s special constitutional convention. the assembled politicians and officials have the task of proposing a concept of the eu which will match our continental dimension and the st requirements of the 21 century. i acknowledge that this convention is a bold experiment in consultative democracy. however, we need to define what kind of institutional arrangements will be prerequisite to meet our aspirations, what kind of society and what kind of economy we want to build. i also do not think that the real question is of federalism versus national sovereignty. the eu is federal already. it divides power between different levels of authority. the questions now are over the most effective and legitimate way to divide that power, so that national sovereignty is preserved within an integrated system. if those questions can be resolved, europe will earn the voice it seeks on the world stage. this, however, does not mean that we have to give up our national identities. their roots go very deep, and it is absolutely in the european union's best interest to preserve specific national and regional cultural traits. " unity through diversity " is certainly an advantage europe has compared to other regions and economic areas. i am confident that - if we succeed in tapping the creative and problemsolving potential of europe's diversity to work on reaching common goals - europe and its countries face a bright future. after successfully implementing emu, the next major challenge europe faces in the upcoming years is certainly the enlargement of european union. this integration project is just as impressive and farsighted as emu, and it also holds out enormous opportunities - as well as challenges that must not be underestimated. this project seamlessly continues an european

types of banks ’ earnings, especially in the fields of international payments, money exchange, interest arbitrage and hedging against exchange rate risks. in addition, the increase in competition brought about by the common currency also had some adverse effects on commission and interest income of financial institutions. financial intermediaries that were not able to offset the decline in earnings by cutting costs saw profits decrease and hence their risk - bearing capacity weaken. when the institutions affected, however, responded to the setbacks in earnings by increasing their cost efficiency, financial stability was not compromised. a typical strategy of cutting costs in the process of integration consists in taking advantage of economies of scale and scope produced by vertical and horizontal integration of financial institutions on a domestic or cross - border basis. merging two or more institutions into one with a single management structure is an obvious strategy for companies which want to gain influence in the single financial market beyond their home region and to reduce costs. however, mergers and acquisitions in the financial sector – no matter whether they are national or cross - border events – increase both the market power and the systemic relevance of individual institutions. the influence of these institutions may be so great that the whole financial system of certain countries is “ at their mercy ”. aside from the problematic concentration of stability risks, in dominant financial institutions there is also a greater danger that their management is tempted to succumb to moral hasard by assuming that their businesses were too big to fail. on the other hand, large financial institutions usually have a more advanced risk management system, which promotes financial stability. when consolidating financial institutions of different sectors into financial conglomerates additional stability risks arise, such as regulatory arbitrage, complexity and contagion. an increased risk of contagion exists not only for cross - sectoral integration, but also for cross - border integration. this can be the result of the expansion of financial institutions into other eu member states. as a case in point, the banking sectors of the new member states ( nms ) are particularly characterised by high levels of foreign ownership. in 2004, on aggregate, 71 % of total assets of the nms banking sector were foreign - controlled compared to only 15. 5 % in the euro area. other factors promoting cross - border integration of financial institutions are the common money market, common payment systems and the increasing importance of inter - bank business. from the perspective of financial stability, the increased potential risk of a spill - over of foreign financial crises into the domestic market