of smaller, export - oriented countries, while some peripheral countries are lagging behind, both in terms of gdp growth rates and of unemployment rates. although this divergence is of course worrisome, we should not immobilize ourselves by focusing on the problematic cases alone. if we do, we might forget that on average the performance of the eu economy was good – both during and after the crisis. the flexible way in which many countries reacted to the unexpected events was certainly facilitated by the past progress of european integration, which was accompanied by structural progress and an intensification bis central bankers ’ speeches of trade. the remaining divergence in economic development, however, is in my view a clear mandate to further reduce the institutional heterogeneity of economic governance. in order to shape the new institutional landscape in the best possible way, it is useful to look back for a moment and analyze the trends and conditions that made a crisis of this size possible. a correct account of the crisis period is not only important for economic historians. it is even more important for today ’ s policymakers as it enables them to identify the main weaknesses and to tackle them in an adequate way. in many respects the chronology of the recent contraction has followed the prototypical sequence of events characteristic for severe financial crises. the main preconditions were a number of slowly emerging disequilibriums on the real side of the economy, accompanied by suboptimal behavior and regulation in the financial sector. these real factors include, for example, the global imbalances that led to the “ paradox ” financial flows from emerging to advanced economies. this caused a relative abundance of available funds in the advanced economies, which was further amplified by a rapidly growing financial industry and a period of rather low global interest rates. these elements, among others, contributed to an increase in household indebtedness and to low private savings rates. the financial sector, on the other hand, was eager to satisfy the demand for apparently safe assets by designing and selling exotic products. at the same time, one could observe a deterioration of lending standards, excessive leverage ratios and the extension of management contracts that favored shortterm behavior and excessive risk - taking. in the financial crisis, all of these factors worked together to cause a massive fall in asset prices, a wave of fire sales and an almost complete breakdown of the interbank market. these turmoils in the financial market then led to a loss of confidence in the real sector and

first thought about a possible topic for the 2011 economics conference last fall, we did not expect – and could not have expected – how significant and intensively debated this very topic would be in may. the debt crises and institutional reforms we have observed over the recent months have moved the topic of the future path of integration to the top of both the european and the international agenda. i am therefore looking very much forward to our discussions, which promise to be lively and – hopefully – also fruitful. ladies and gentlemen, from its beginning, europe has been characterized by alternating periods of integration and disintegration. this, however, is not to say that every step toward more integration has to be followed by a step in the opposite direction. historical progress does not follow such a simple pattern. in the sixty - six years since the end of world war ii, a model of european integration has developed which is – for the first time – neither based on strategic alliances nor on involuntary association. the connections between countries have become closer and closer over the years, even though this process has not been linear but has had its ups and downs, its “ speed - ups and slow - downs ” so to say. every setback, however, was typically bis central bankers ’ speeches followed by a further leap forward. if the picture of circular movements is at all accurate, one should think of european integration not as a wavelike process but rather as a spiral stair where each cycle is accompanied by an upward movement. in recognizing this pattern, i do not wish to diminish the challenges we are facing today. nor do i wish to suggest that it will be easy to find the right answers to these challenges. we have heard many different assessments of the causes and underlying mechanisms of the current situation and equally many proposals, suggestions and solution strategies. politicians, economists and commentators are in disagreement on many of the issues currently at stake. it is rather telling that this disparity of positions is also reflected in the public opinion and in noneconomic newspaper articles. two well - known german - speaking authors, for example, recently expressed their views on the european project – and they have come to almost diametrically opposed conclusions. while one of them talks about the “ gentle monster brussels, ” the other praises the qualification and dedication of its bureaucracy. in light of the already existing multitude of opinions, let me offer just some brief observations on our current situation and on a possible way forward. let me start by saying that i see