are appropriate and efficient. that is particularly true if the planned enlargement of the eu, and also of emu, is taken into account. there is a lot of evidence suggesting that the latest amendment of the ec treaty by the treaty of amsterdam ( known as the maastricht ii treaty ) has failed to solve these major problems. all this makes two things very clear : 1. the launch of the euro is a political act, and far more than a mere technical development. it has substantial implications for economic and political structures and responsibilities in europe. 2. the stability of the euro is a major challenge not only to the eurosystem but likewise to the economic and fiscal policies of member states and to the coordination of those policies. to sum up, i should like to emphasise once again that, all in all, the euro has got off to a good start, also in the light of the counterinflationary policy setting. but the acid test still lies ahead. the major opportunities afforded by the euro are accompanied by corresponding risks and challenges. the fate of the euro in the years ahead will hinge crucially on whether member states become aware of this task, and on how they address it. this issue will certainly also play a major role in the forthcoming debates in the uk and other countries on joining the eurosystem. i very much hope that the behaviour of the euro member states will make it easier for the nations and governments in question to reach a favourable decision.

time being, and so that the broader process of de - leveraging can be accommodated with as little disruption as possible. central banks have stepped up their liquidity efforts in a major way, with a number of them providing much more in the way of own - currency funding against a wider range of collateral. but the most visible impact is on the federal reserve ’ s balance sheet, where assets have nearly doubled in the past six weeks as a result of increases in the fed ’ s various facilities. an increase in swap lines with other central banks, which allows the supply of dollar liquidity in asian and european time zones, has been one large contributor to the expansion ( and the rba has participated in these lines ). the most recent development has seen this liquidity operate on tap in several major countries – at a fixed price, in any amount market participants require, for terms extending out to three months. as a result, there is a now a huge amount of us dollar liquidity in the system. but while liquidity provision helps, it can, at best, ameliorate the impact of counterparty risk. it cannot eliminate it. the second thing that is needed is a restoration of confidence in the key financial institutions. because the lack of confidence is, ultimately, about solvency, re - capitalisation of the relevant institutions is required. the lesson of past banking crises, moreover, is that when there are really serious problems in private balance sheets, capital may be available in sufficient quantity only from the public purse. this should of course come with appropriate conditions – private shareholders should absorb the losses from past problems, governments that put in new capital should share in the upside and guarantees that are offered should be priced. governments should plan to divest their holdings in banks in due course. the uk government ’ s plan announced a couple of weeks ago, which seems to have become something of a template for these sorts of intervention, appears to have the key elements needed to restore health to the key international institutions. it increases further the supply of liquidity for the short term. it also provides for an increase in the capital of key uk institutions, from the public sector if needed, via the government underwriting capital raising. and it provides some confidence for term funding markets by offering a guarantee of the debt obligations of the relevant banks for a period of time. this guarantee is not free to the banks – they will pay for it on commercial terms, which in the current environment are unlikely to be cheap