stable. 4. capital markets union – the day after tomorrow? the european banking union is definitely a major step forward in designing a better framework for the european monetary union. however, europe should broaden its view beyond the banking sector. consequently, the eu - commission has proposed to establish a european capital markets union. following monetary union and the banking union, this will be the third major step of financial integration in europe. in essence, the european capital markets union has two objectives. the first objective is to increase the share of capital markets in the funding mix of the real economy. the second objective is to integrate capital markets more closely across borders. some people relate the first objective to the question of whether a capital markets - based financial system is superior to a bank - based financial system. well, to sum up the empirical evidence : it depends. it depends on a number of factors and country - specific characteristics, which makes it hard to provide a general answer. nevertheless, the recent crisis shed light on these issues from another angle. a system in which the real economy relies on a single source of funding will most certainly run into trouble when that source dries up – regardless of whether it is bank funding or capital market funding. therefore, it is not a question of “ either / or ”. the objective of the european capital markets union is not to abandon bank - based funding but to supplement it with capital markets - based funding. and in europe above all places there is ample room to do so. the european stock market is only 60 % the size of the us stock market when measured in relation to gdp. likewise, the european market for venture capital is 20 % the size of the us market, and for securitisations the percentage is even lower. in the end, it comes down to the uncontested argument of diversification. increasing the share of capital markets will improve and broaden access to funding particularly for small and medium - sized enterprises which form the backbone of many european economies. at the same time, it will improve the matching of investors to financial risk, thereby increasing the efficiency of the financial system. as a result, the financial system will be able to better support sustainable economic growth. the second objective of the european capital markets union is to improve the integration of capital markets in the entire european union. one of the main arguments is that integrated capital markets can improve private risk sharing. the technical question is : to what degree does a shock to the economy affect consumption? empirical

glenn stevens : recent economic and financial developments in australia opening statement by mr glenn stevens, governor of the reserve bank of australia, to the senate economics references committee, sydney, 28 september 2009. * * * thank you mr chairman. i have just a few opening remarks. economic conditions in australia were generally quite subdued in the second half of 2008 and the first part of 2009. output was sluggish, hours worked in the economy declined, unemployment rose and inflation started to abate. by the standards of past recessions, however, this was a mild downturn. although the evidence is as yet incomplete, this episode has been much less serious than those in the mid 1970s, the early 1980s and the early 1990s. it also has been very mild indeed in comparison with recent outcomes in many other countries, where deep recessions have been experienced. for the g7 group of advanced countries, for example, a cumulative contraction in real gdp of nearly 5 per cent was experienced over the four quarters to june this year. the australian economy recorded a small net expansion in gdp over the same interval. so i think it is reasonable to conclude, against the benchmarks of historical and international experience, that australia has done quite well on this occasion. why was that so? the key factors have been articulated before, but it may help to frame our discussion here today if i recount them. first, our financial system was in better shape to begin with, being relatively free of the serious problems the americans, british and europeans have encountered. lenders have some problem loans, as always occurs during a downturn, but these are manageable. the banking system has continued to earn a positive return on its capital, unlike those in some key countries. the system has been affected by the spillovers from the global crisis, through tighter borrowing conditions in international markets, higher spreads and so on. but these too have been manageable and various policy responses have helped the system to cope. the reserve bank was prepared to expand its balance sheet to assist in maintaining liquidity and the government guarantees were important in shoring up confidence and maintaining access to wholesale funding. second, some key trading partners for australia have proven to be relatively resilient through this episode. the chinese economy did slow sharply in the latter part of 2008, but quickly resumed very strong growth. china will easily achieve her 8 per cent growth target this year, led by domestic demand. many of our other asian trading partners have also returned to growth recently. ongoing