that could be cited as possible causes of these disturbances. they include shortcomings in economic policy, inadequate supervision and, in many instances, poor risk management by the players themselves. but the roots of the problem go deeper than this. the basic issue is the financial system ’ s vulnerability to unforeseen events. take, for example, the bank sector ’ s solvency, measured as the ratio of equity capital to the balance sheet total. this amounts to only a few per cent, whereas the level in non - financial firms is 20, 30 or even 40 %. so a simple way of solving the bank sector ’ s vulnerability would be to raise the capital base to what is customary in other companies. banks would then be in a better position to cope with unexpected disturbances in the financial markets. maintaining a large reserve of equity capital for unexpected events is, however, costly and someone would have to pay for this. the solution would therefore lead to expensive credit and low interest on deposits. projects that are not exceptionally profitable would not obtain finance and the level of saving in the economy would be low. with little investment and low saving, growth would ultimately falter and prosperity would suffer. from this it will be readily understood that unduly tight capital adequacy requirements for the bank sector can be very costly for the entire economy. so if the whole economy would be liable to suffer because the banking system opts for or is coerced into holding a sizeable capital reserve, one can say that this is not a viable remedy for ensuring the financial system ’ s stability. but how, then, are financial crises to be prevented? after the global crisis in the 1930s, the path that was chosen up to around the 1970s ( its duration varied from country to country ) was regulation. credit and exchange controls were reintroduced. in sweden, the credit system had been liberalised in the middle of the 19th century but after the 1930s it was regulated once more. the risk of serious financial crises was countered by controlling the domestic credit supply in detail and more or less prohibiting cross - border capital movements that were not directly connected with trade in goods and services. but these controls also had the effect of hampering the financial system ’ s development. if the costs of this period of regulation could be identified and estimated, we would probably find that they were considerable. what this amounts to is that high capital requirements for banks are costly, not just for the banks but for the entire economy, and the

race to the bottom ". in addition, completing the single market would be a welcome contribution to structural reform in the euro area and the european union. speeding up the process of structural reform as well as deepening reforms are the key challenges facing the european union. only through reforms aimed at improving the functioning of the market mechanism will it be possible to bring the potential level of growth in the union to a structurally higher level. i should like to emphasise that although the euro will probably act as a catalyst for further european integration, this does not necessarily imply that further european integration is a prerequisite for a well - functioning monetary union. the current framework – laid down in the maastricht treaty – has so far proved to work well and will continue to do so in future. a key element of the institutional framework is the stability and growth pact. the pact provides a solid foundation for sound fiscal policies in individual countries as well as in the euro area as a whole. the ecb strongly supports the european commission in its sustained effort to apply the rules of the pact and exert peer pressure on governments, irrespective of the size of the countries in question. in addition, i am – of course – particularly happy with the treaty provisions regarding monetary policy. they provide the ecb and the national central banks of the euro area with a clear mandate – to maintain price stability – and clear independence from third parties to achieve this objective. in this way, the drafters of the maastricht treaty have taken into account the experiences of, especially, the 1970s and early 1980s and the empirical research carried out in this area, which clearly show that the best contribution a central bank can make to economic growth and welfare is to maintain price stability. i can assure you that some people in this room – in particular hans tietmeyer and cees maas – fought like lions for this " monetary statute ". ladies and gentlemen, i should now like to bring my remarks to a conclusion. the european central bank and the city of maastricht have something very important in common. both will forever be associated with the euro, our single currency. the decision of the maastricht university and the city of maastricht to initiate the research project " one money, one euregion " and to organise this conference, as well as the hospitality of the city of maastricht in receiving the governing council of the ecb, also bear witness to this city's continued