fundamentally wrong with this argument. second, with regard to its application, fair value accounting poses certain operational challenges, namely when markets become illiquid and reliable market prices are no longer available. what is the use of marking - to - market when there is no market? the relevance and reliability of fair values based on market prices require a functioning market where prices adequately reflect the underlying fundamentals of the financial instrument. when the market is significantly disrupted, the use of market values may be utterly meaningless. in these cases, appropriate valuation techniques coupled with adequate guidance on the application of these techniques are needed in order to arrive at a reasonable estimate of the price at which an orderly transaction would currently take place between market participants. an entity should have in place adequate models that have been tested for accuracy in case the market is severely disrupted. moreover, in rare circumstances, if the market dynamics are such that an institution may be forced to change its respective business model ( i. e. shifting from a “ day trading ” to a “ buy and hold ” business model ), then it should be able to reclassify financial instruments at amortised cost. these are important lessons to be learnt from the financial crisis. hence the ecb is of the opinion that fair value measurement should only be required if it is consistent with the institution ’ s business model and the characteristics of the particular underlying asset or liability. which would be the worst drawbacks, if any, deriving from applying fair value in the light of the events happened in the last two years? which are the positive aspects? in my view, the financial crisis has clearly highlighted the heightened pro - cyclicality stemming from two mutually reinforcing channels in the accounting framework : fair value accounting and the current loan loss provisioning practices ( impairment methodologies ). fair value accounting – while certainly not being the “ root cause ” – served as an amplifier of stress in the financial system. fair value measurement – by its nature – tends to introduce pro - cyclicality into the accounting framework. it requires the immediate reflection of marketrelated information in the financial accounts ( thus providing a “ snapshot ” of the reporting entity ’ s economic condition ). in doing so, all fluctuations in fair value ( even if only temporary ) are to be reflected, thereby increasing accounting volatility. downward swings in fair valuations of assets cause entities to sell these assets ; these “ fire sales ” may themselves add to further downward pressure on respective market prices. as a result,

" is itself part of a much broader process of european economic and political integration. therefore, in order truly to understand the euro one should in fact consider it first in the context of the european integration process that began already five decades ago. from the beginning, the purpose of this process was to bring the countries of europe and their economies closer together and, in so doing, create an area of peace, prosperity and stability. i suppose these motivations are by no means dissimilar to those which lie behind the various other regional links which have since been formed in other parts of the world, including here in asia. the european experience in working towards this goal has been one of gradual progress, even though with numerous ups and downs. nonetheless, the main objective remained ever intact. as economic integration progressed further and further, as we overcame ever more subtle barriers to trade, it became increasingly apparent that one substantial barrier to the creation of a truly pan - european economy remained. i refer of course to the persistence of exchange rate fluctuations which resulted from the existence of separate national currencies governed by independent monetary policies. in short, european policy - makers had to face up to the fact that, over extended periods of time, you cannot simultaneously maintain free trade, unrestricted capital movements, fixed exchange rates and independent monetary policies. a choice had to be made and ultimately the time arrived when most european countries deemed it more advantageous to firm up the european " single market " than to maintain their national currencies. * * * i should add that, beyond this more fundamental motivation, there were other important developments which probably influenced the decision to adopt a common currency. the end of the cold war set new political parameters for the integration of western europe. regional integration and the creation of a large economic area have also come to be seen as even more necessary in order to prosper in an increasingly globalised world economy. from the point of view of a central banker, the evolving consensus as to the appropriate role of monetary policy and of a central bank was particularly important in laying the foundation for a viable single currency. moreover, an increasing awareness that using monetary policy directly to stimulate growth and employment was not working and was even proving counterproductive, might have strengthened the perception that, in an already deeply integrated europe, there was little to lose from giving up autonomous monetary policies. by contrast, a good deal could be gained by removing exchange rate fluctuations and by establishing an independent european central bank with a clear objective to