inflation. this effect, however, does not suggest the maastricht criteria to be revised. the inflation criterion already allows for inflation to diverge by 1. 5 percentage points from the three best performing members of the currency union. nor does the balassa - samuelson effect suggest to loosen the two percent ceiling for price - stability in the euro area, which leaves enough room for price increases due to catching up. sustainable convergence in inflation rates is crucial. inflation rates can be kept at a sufficiently low level only if other policies comply with the stability orientation. prudent wage policies will contribute to containing overall price developments. structural policy also has a role to play. currently, 25 percent of prices in accession countries are still administrated. microeconomic reforms and further price deregulation have to be carried out. only then can the price mechanism fully work through to the economy - a defining feature of a fully functioning market economy. fiscal policy is of special importance in this respect. excessive deficits are to be avoided. the public sector deficit is the decisive measure of a government ’ s demands on the financial markets. it is the benchmark for its stability orientation. last year general government deficits among the accession countries ranged from 0. 4 percent of gdp ( in estonia ) to 7. 1 percent of gdp ( in malta ). eight of the accession countries had not yet met the maastricht budgetary criterion. however, the debt criterion - public debt less than 60 percent of gdp - was met by a broad majority of the accession countries. there are still a few years in which to pursue convergence and to prove its sustainability. nominal convergence is not a goal to be reached at a certain point in time ; it is, rather, the natural and sustainable state of a stable currency union. apart from nominal convergence, real convergence is of importance in a monetary union. i use the term here in the sense of synchronicity of business cycles. the governing council of the european central bank designs monetary policy appropriate to the euro area as a whole. a country whose business cycle gets grossly out of step might suffer if it is subject to a monetary policy that is inappropriate to its national economy. however, marching in absolute lockstep is not necessary, as can be seen in the usa, where certain regions grow faster than others. growth rates of states and regions within a currency union may differ to some degree. it is the size of the gap between actual and potential growth rates

must also have an interest in the losses. " to be able to shoulder major losses, there naturally has to be bail - inable capital in excess of other capital as well, which is why minimum requirements for bail - inable liabilities were 7 / 13 bis central bankers'speeches developed at both the global and european level. for the large, systemically important banks, these requirements play a role in curbing the too - big - to - fail problem. the same is true of additional capital surcharges for this group, which are intended to form part of an even larger buffer, but also to help reduce the size - related funding advantage of these institutions. admittedly, the crisis showed that monitoring the stability of individual financial institutions does not suffice when it comes to safeguarding a stable financial system. anyone who thinks financial stability can be preserved in this way can ’ t see the forest for the trees. or, as janet yellen once put it : before the crisis, “ we looked closely at the trees and not as intently as we should have at the forest ". the approach of looking at “ the forest ” in the sense of financial stability has come to be termed “ macroprudential " - in contrast to “ microprudential ” supervision, which looks specifically at the individual trees. and with regard to the macroprudential approach, considerable progress has since been made here, too. institutions that have analytical capabilities and are designed to identify risks to financial stability have been set up at the global, european and national level. moreover, special tools were created, such as borrowing limits for real estate loans. yet the interactions in which microprudential and macroprudential instruments intervene are always complex, and good intentions do not always produce good results, as history has shown with the cobra effect. the concept is named after a british governor ’ s failed attempt to tackle a plague of cobras in india. because of the bounty for each dead cobra, the indian population began to breed and kill cobras in order to cash in on the reward. and after the bounty was scrapped, the remaining captive cobras were released, so that in the end there were even more cobras than there had been originally. or, to put a less dramatic and more nuanced spin on it, you could say that every measure can of course have side effects alongside the intended effects. at the end of the day, the costs and benefits of regulation have to be