me point out that the national central banks within the eurosystem regularly monitor and analyse macroeconomic, fiscal as well as structural developments in their respective countries, publishing their findings in their monthly, quarterly or annual reports. these analyses clearly enhance our understanding of euro area developments. however, given its euro area focus, it is natural for the ecb to pay greater attention to the euro area perspective in its explanations of the single monetary policy. as mentioned at the beginning of my remarks, we are currently experiencing truly historic developments. the dream of a united europe stretching beyond former post - war rifts is about to become reality. although major challenges lie ahead, as many of the acceding countries are still developing into fully - fledged market economies, i believe that the signing of the accession treaty at the athens summit in april testified to our joint belief in an integrated europe. the clear endorsement of the treaty in the national referendums that have already taken place in a number of acceding countries provides evidence of this commitment. it goes without saying that an enlarged european union will require a number of adaptations in the working procedures and the internal functioning of european institutions and bodies, including a reform of the voting modalities of the governing council. i am well aware of the views that the european parliament has expressed in this regard, but let me again point out that the nice treaty set clear conditions and limits within which our reform proposal had to be formulated. while the adopted changes in the voting modalities are, admittedly, complex, the tried - and - tested principles of the eurosystem constitution, in particular the ad personam participation of governors and the “ one member, one vote ” principle for the members exercising a voting right, have been kept fully intact. this will ensure that, also in a significantly enlarged euro area in the future, the governing council will maintain its capacity for timely and efficient decision - making. upon accession, the new member states will join economic and monetary union with the status of “ countries with a derogation ”, and their central banks will become part of the escb. at a later stage, these central banks will become part of the eurosystem, once their respective countries have fulfilled the convergence criteria for adopting the euro. a key priority of the ecb is to have in place the necessary technical and institutional infrastructure to ensure an orderly enlargement of the escb and, later on, of the eurosystem. an interesting foretaste of the new,

management practices and standards under the more sophisticated approaches of basel ii will be useful for all institutions. admittedly, not all aspects of basel ii will be of use to every bank. for example, some of the quantification tools used in large complex institutions may not be necessary for the smaller and less sophisticated institutions. but, common tenets of good risk management embodied in basel ii - such as good processes to identify risks, the exercise of sound judgment to assess the extent of threats to solvency posed by the risks, and the discipline to control risks if they are disproportionately high - are equally applicable to all institutions, large or small. basel ii and financial stability one of the criticisms of basel ii is that capital cushions required under pillar 1 will tend to become more cyclical, dropping at the peak of economic cycles and increasing at the bottom of cycles when capital can be more scarce and expensive. if not addressed, this pro - cyclicality could erode the solvency cushions that banks should be holding against the effects of economic downturns. addressing this is one of the most important remaining challenges of basel ii and is particularly associated with the implementation of the more sophisticated approaches of the new capital framework. despite reassuring noises from the basel committee, this is not going to be an easy problem to address. few people, and definitely not banking supervisors, can foresee the peaks and troughs of economic cycles. but our inability to perfectly foretell the future should not be a pretext for inaction. an effective supervisory review process will be critical to create a counter - weight to the cyclical tendencies of the new capital framework, in order to prevent increased incidences of failures and financial instability. managers of banks and bank directors have an even more important role to play. they have the primary responsibility for identifying and assessing various threats to solvency of their own bank, including the risks that are partially covered or not covered at all under pillar 1 of the framework. they also need to be cognizant of the cyclicality arising from their quantitative tools and should have sufficient compensatory mechanisms against the cyclicality of regulatory capital requirements. these issues are referred to in pillar 2 of basel ii. this is what we refer to as “ supervisory car ”, to address risks not covered or not fully covered by the formulae in pillar 1. one of the biggest challenges to supervisors now is to develop more detailed guidance for the implementation of pillar 2 and to follow that guidance in a consistent