economic consequences of the crisis, but it cannot solve the crisis. to say it once again in wim duisenberg ’ s words : “ don ’ t ask for monetary policy to perform tricks it cannot deliver. ” therefore, the best contribution the eurosystem can make to a lasting resolution of the crisis is to fulfil its mandate : that of maintaining price stability. to avoid potential conflicts of interest between the ecb ’ s mandate to safeguard price stability and its role in banking supervision, changes to the european treaty will be needed in the medium term in order to strictly segregate these two functions. klaas knot said recently in an interview with the german daily “ handelsblatt ” that it was sensible to make use of the ecb ’ s credibility to establish the ssm, but that it should be bis central bankers ’ speeches considered to eventually outsource the ssm from the ecb and to establish a separate institution. and i can only agree with his view. 6. conclusion ladies and gentlemen, let me conclude. the crisis has laid bare shortcomings at the national level as well as weaknesses in the monetary union ’ s institutional architecture. repairs at the national level have seen considerable progress, though there is still a long way to go. like in a marathon, the second half of the course always feels tougher than the first – and one major challenge is to not give in to the growing reform fatigue. but at this point, the weaknesses in emu ’ s architecture probably pose a more fundamental challenge. the balance between liability and control has got out of kilter. we need to regain that balance if we are to put emu on a more solid footing. since a genuine fiscal union is not on the cards – and to me it does not seem to be for the foreseeable future – we need to make the principle of individual responsibility work. therefore, we need to break the sovereign - bank nexus in both directions. the banking union is an important first step. but we also need to put an end to the preferential treatment afforded to sovereign debt in order to immunise the financial system against sovereign default. to me, these are the piles we still need to push into the ground to provide for a lasting foundation of our monetary union. i now look forward to governor knot ’ s take on emu ’ s most pressing challenges. klaas, the floor is yours! bis central bankers ’ speeches

habit. ” strict and consistent application of the stiffened rules is therefore important. here, the commission has a special responsibility. in this context i am worried that the fiscal policy rules have become ever more complex and, in turn, so has monitoring compliance with them. it has now become almost impossible for experts, let alone the general public, to determine whether or not countries are complying with these budget rules. this naturally reduces the binding force of the rules. the binding force of the rules can also be diminished if there is the impression that they are not being strictly interpreted by the bis central bankers ’ speeches commission. and the assessment procedure gives the commission greater and more discretionary leeway. metaphorically speaking, we need to make sure that the commission does not go beyond its role as a referee and move the goalposts mid - game. based on past experiences it is clear to me that stiffening the rules alone won ’ t suffice to enforce the principle of individual responsibility. at its core, this principle requires that sovereigns, banks, and investors bear the consequences of their decisions. this implies that it is primarily up to the respective government and its citizens to come up with the revenue required for repaying public debt. this holds, in particular, since high levels of public debt often go hand in hand with substantial private assets. but it also implies that the risk of non - repayment ultimately lies with the investors, since they are the ones who reap the return when things go well. and if the fiscal limit has been reached for real, public debt needs to be restructured without posing a systemic threat to financial stability. the introduction of collective action clauses into sovereign bonds was a first step in that direction. but more steps are needed. the bundesbank has put forward a proposal for sovereign bonds to include an automatic maturity extension of three years in case a sovereign accesses the european rescue mechanisms. this automatic maturity extension would allow the sovereign in question to tackle its fiscal challenges while preventing investors from bolting. liability and control would be brought better into balance. the amount of official financial support would be reduced, and time is bought to figure out if the problem is one of temporary illiquidity or insolvency. but ultimately, all these questions boil down to the quip of american economist allan meltzer : “ capitalism without failure is like religion without sin. it doesn ’ t work. ” for the above proposals to work, we need to make sure that the ins