the crisis, while the role of the state faces much less scrutiny. the question of whether monetary authorities, prior to the crisis, properly regulated interest rates as a key price in the economy attracts much less attention in the debate than it should. the same is true for the question of whether the existing store of individual countries'supervision tools was used correctly and adequately before the crisis. this is interesting, as the crisis poses some new challenges and questions. should monetary policy try to stabilize a broader set of indicators in the future, not just prices of consumer goods, but also real - estate or other asset prices? does it make sense to have a separate currency but not to have an autonomous monetary policy, like the baltic countries and bulgaria, or to have a separate currency but not to have an effective lender of last resort, like iceland? doesn't the system of exchange - rate pegs, quasi - pegs or currency boards increase imbalances of those who are pegged, and thus their vulnerability in a crisis? these questions are important, but they are not being properly discussed in the current debate. many forget that the state's role in the financial sector is already huge. central banks, finance ministries and various state agencies across the globe do regulate and supervise the financial industry more, not less, than many other industries. yet that is precisely why every further tightening of the screws should be carefully considered and analyzed, not adopted under pressure or threat, hastily or imprudently. one should bear in mind that regulation never distinguishes the bad banks from the good ones. and even this crisis has revealed that many financial institutions are in good shape and coping with its consequences quite well. although many people won't admit it, new rules being drawn up today will radically affect the financial market tomorrow and beyond. that's the way it goes : times of crisis permit dramatic and rapid changes that would not be implementable, or even thinkable, under normal circumstances. but when the dust settles, it is very difficult to reverse them. all thinking people in the financial sector should want to ensure that the rash solutions adopted in the present bad times, many of which will do little or no good anyway, do not in the long run generate much worse times for the industry, and hence its clients. putting out a fire is one thing. but improving the fire regulations is quite another. certainly a large fire can provide inspiration for future fire prevention. but it is by no means wise to fight the

fixed and the banking union completed. otherwise, market participants will continue to fear that local vulnerabilities could eventually spread and destabilise the european banking system before all the firefighting tools are ready to be deployed. the aim must be to move forward swiftly on both risk reduction and risk sharing. risk sharing involves both the public and private sectors, for example by ensuring the same level of deposit protection through a european deposit insurance scheme, but also by continuing to build a capital markets union in europe. the eu and emu also need to face up to their institutional weaknesses. on average, people ’ s trust in both national and eu political institutions is very low. as regards the national level, we know from the economic literature that strong institutions are crucial for sustainable economic growth and governance indicators suggest that there is room for improvement in many member states. as regards the european level, the gap between people ’ s expectations and the eu ’ s institutional setup is widening : • first, the perceived legitimacy of the eu remains low. the eu is not regarded as “ efficient ” and only a minority of citizens feel that their voice counts in the eu. • second, opinion polls suggest that citizens are not opposed to european decisionmaking. specifically, they want the eu to concentrate on their key concerns, notably to protect them better from economic and security risks, and to provide solutions. when responding to these expectations, the eu and emu face however two challenges : • the first has to do with subsidiarity : it should be made clearer where the eu has an advantage over member states in terms of exercising competence and where not. a better demarcation of competences between the european and national level is desirable – but not easy. loose coordination at european level may give the impression that a competence has been passed to the european level, when in fact it continues to be exercised by member states. the result tends to be that the eu gets blamed for apparently seeking to interfere in national affairs when in fact it does not effectively have the power to do so. it should not be so surprising that in such situations the practical result is a lack of coherent action across the eu. this, in my view, means that responsibilities and accountability lines should be more clearly defined and assigned, as europe has done with the single monetary policy and the creation of the european central bank. • the other challenge has to do with intergovernmentalism. the rationale for the intergovernmental approach is to ensure that decisions