is it enough just to define pillar 2 as a purely microprudential tool, or is the macroprudential toolbox lacking in efficient tools? and indeed, the toolbox defined by the eu legal framework may be too small to address all types of systemic risk. the available tools address only those who grant loans – the banks. they neglect those who take out loans – households, for instance. take, for example, the real estate sector, which often plays a big role in the ups and downs of the financial cycle. when house prices are on the rise, the potential gains from buying a house might be high enough to dwarf any increase in the cost of credit triggered by the countercyclical buffer. here, borrower - based tools would dampen the boom more effectively. i am thinking, for instance, of loan - to - value ratios, ltvs. in some countries in europe ltvs and other borrower - based measures are already part of the macroprudential toolbox. harmonising these tools at european level might be a good next step. at the same time, we should acknowledge that there is a drawback to tools which only focus on banks. the crisis has shown that the financial sector reaches far beyond banks. and when we only tighten rules for banks, certain activities might be shifted to other, less strictly regulated parts of the financial system, namely the non - bank sector. consequently, risks build up outside the scope of banking regulation and supervision. eventually, these risks might spill over into the banking sector. so banks might be protected from the first wave of a crisis, but would be hit by the second wave. ignoring this part of the financial system would leave the door wide open to risks and crises. thus, there is a need for tools that address non - banks and their business. one of these tools concerns margins and haircuts for securities financing transactions and derivatives. as they stand, these margins and haircuts are pro - cyclical : they go down in a boom, and rise in a bust. thus, there might be a case for having tools that would make margins and haircuts vary in a more countercyclical manner. to sum up, we need to clearly separate micro - and macro tools, and we need to expand the macro toolbox. but there is more : we also need to clearly separate macro tools from each other. this is particularly relevant in respect of various structural buffers : the o - si

mr duisenberg discusses the challenges posed by economic divergences in the euro area : the consequences for economic policies speech delivered by dr willem f duisenberg, president of the european central bank, at ‘ nieuwspoort ’ in the hague, netherlands, on 5 november 1999. * * * first, let me thank you for this rather special calendar for the year 2000. as you are undoubtedly aware, the president of the ecb has a very full schedule, not least in explaining the role of the eurosystem and communicating its decisions to the general public ( through the media ). it is therefore a very suitable gift. it is also, however, if i may say so, a very symbolic gift. next year marks the start of a new millennium. the introduction of the euro also marks the beginning of an important and historic step forward in european integration. the introduction of the euro poses some new questions and challenges for the ecb and other economic policymakers in the euro area, and i would like to take this opportunity to deal with one particular issue which has been raised on a number of occasions in the past year - also here in the netherlands - that is the challenges posed by economic divergences across regions or countries within the euro area. the single monetary policy and economic conditions in the euro area as a whole the primary objective of the single monetary policy is to maintain price stability. the ecb has only one instrument at its disposal – short - term official interest rates - and can therefore only aim at one objective. this has been defined by the governing council as “ a year - on - year increase in the harmonised index of consumer prices ( hicp ) for the euro area of below 2 % ”. the objective of price stability “ is to be maintained over the medium term ”, emphasising that monetary policy needs to be forward - looking. but this definition also stresses the fact that the focus of the ecb is on price developments “ in the euro area ”. in reaching its decisions on monetary policy, the governing council is concerned with economic conditions in the euro area as a whole, rather than specific regional or national developments. it is sometimes said that while the single monetary policy may be “ right ” for the euro area as a whole, it is “ wrong ” for many individual countries within the area. i disagree with this view. first, it overlooks the fact that within a single currency area adjustment can occur via prices and wages. second, it in