the ball is in the court of the private sector and the euro area governments. so let me turn to how we can rethink the financial sector architecture in europe for longlasting stability and integration of the banking sector. missing elements in architecture : the banking union the path towards a more sustainable architecture of emu is still under - way. but much has been achieved. indeed, the crisis revealed the fragilities and flaws in the foundations of the european construction, especially in the financial sector. we understood that national laws and regulatory frameworks proved inadequate. the lack of harmonised policies and centralised provisions at european level caused a situation in which banks operated not on a level playing field. more importantly, there was no institutional framework to deal with systemic risks in the banking sector, be it domestic and cross - border. in fact, some of the biggest players virtually eluded any form of control or limits to their activity. the establishment of the banking union is therefore an important milestone towards genuine stability and integration of financial markets in the emu. just a few weeks ago the regulation establishing the single supervisory mechanism ( ssm ) entered into force and the construction of the single resolution mechanism is on its way. the establishment of the ssm is a fundamental step within the new emu architecture. not only because it will be vital for banking stability in the euro area, but because it will be housed in the ecb. this implies both major institutional and logistical consequences for our institution. just as for single monetary policy, common supervision must be built on solid institutional and legal footing. again, a stringently defined institutional framework will set out a clear mandate, but also provisions that specify the boundaries of the tasks and responsibilities needed for banks to operate in a system of effective supervision providing a level playing field across the euro area. article 127 ( 6 ) tfeu provides that the council may confer specific tasks upon the ecb concerning policies relating to the prudential supervision of credit institutions and other financial institutions with the explicit exception of insurance undertakings. 4 let me mention the foundation stones on which we have built the ssm and which will serve to ensure effective supervision : first, the ecb should remain independent in carrying out all its tasks. this includes the supervisory tasks conferred to the ecb. independence is a key element to avoid leniency to any type of political pressures. such pressures would undermine the effectiveness of the supervisory actions, which should only be guided by economic and technical considerations. second

. but these are not just nice words. hb : what was agreed? trichet : the commission in liaison with the ecb and the imf will monitor very closely the implementation of the measures. but what is also decisive that all governments take fully their responsibilities of surveillance. it is true for all the other 15 and of course for germany amongst them. germany is the largest economy in the euro area and a country which has a tradition of sound fiscal management. i count on the very active role of all countries including germany inserting the function of surveillance. hb : should the ecb not also have been tougher and more vocal in its criticism of european governments in recent years? trichet : the governing council has been public in asking governments to embark on better and sounder fiscal policies on the occasion of all our monthly meetings. you have heard me being vocal in all my press conferences. i had to counter in the name of the governing council, the attempt to destroy the stability and growth pact in 2004 and 2005. this attempt was engineered by the big countries of the euro area, including germany and france and by the chancellor of germany and by the president of france of the time. and in all euro group meetings since five years i call ministers to regain control not only of their budget but of all nominal evolutions including unit labour costs. hb : what needs to be changed? trichet : we certainly do need change in europe – fundamental change. not only in the area of surveillance and monitoring of fiscal policy, but also as regards structural reform policies and competitiveness policies. hb : examples? trichet : we need to improve drastically everything : the quality of the diagnosis and recommendations by the commission, much more stronger procedures – and where necessary automatic procedures and tools – to prevent ex ante bad policies, and much more effective sanctions ex post. i will make all these points with the greatest energy in the van rompuy committee. hb : will the measures adopted by the ecb now dampen growth in europe? trichet : no. it is a complete fallacy to say that fiscal soundness dampens growth. it is exactly the contrary. it is the absence of fiscal credibility which dampens growth. medium term sound and credible fiscal policies are a major prerequisite for confidence. and confidence of the households, confidence of the entrepreneurs and confidence of the investors is what is indispensable for the recovery. hb : did you ever think that you would