peter praet : interview in vdi nachrichten interview with mr peter praet, member of the executive board of the european central bank, in vdi nachrichten, conducted by ms sabine seeger and published on 24 march 2017. * * * mr praet, the european union is celebrating its 60th anniversary on 25 march in rome. after a brilliant start and major achievements, the community is now in a crisis. can it be overcome, do you think? the people of the european union ( eu ) have got so used to the benefits of open borders and the single market that they can no longer imagine what it was like before or what it would be like without it. they live in a stable world and are not always aware that it ’ s a great asset, and one that needs to be preserved. what has to be done now? we have to re - convince people that the eu market, with more than 500 million people, forms the basis for our prosperity. when we laid the foundation for it in 1992 with the maastricht treaty, the eu was a grouping of relatively homogeneous states. however, as a result of the enlargement, countries were integrated [ into the eu ] which had much lower income levels or much weaker social safety nets. this has led to distortions which we have to address. some examples? there can be no doubt that trade and a larger market foster prosperity. but we should not overlook the fact that this progress does not benefit everyone to the same extent. this may lead to resentment. such feelings cannot simply be brushed aside ; people ’ s concerns have to be taken seriously. moreover, the enlargement was linked to the expectation that the community would continue to come together and that people ’ s circumstances would steadily improve. this has happened for many, but not for all. also, the financial crisis which occurred at the start of the recession in 2009 has led to a crisis of credibility. so there are reasons for many people to feel discontent. on the other hand, the eu is willingly used as a scapegoat. some find this a cheap way to distract from national problems, such as undesirable developments on the labour market, in social security systems or in debilitating bureaucracies. the world is less safe because of politicians such as trump, putin and erdogan. shouldn ’ t this make people think again? we have been able to progress peacefully for a long time

financial institution lead to problems in other previously sound institutions. financial stability allows the financial system to withstand shocks without giving way to cumulative processes which impair, first, the processing of payments in the economy, and second, the allocation of savings to investment opportunities. a robust and resilient market infrastructure is essential for financial stability the provision of credit to commercial banks led the central bank to establish a function to control the creditworthiness of the borrowers. this function eventually developed into “ banking supervision ”. a commercial bank can be the source of financial instability if it faces technical difficulties or if it fails to repay funding. this funding can come either from the regular operations of the central bank or from other depositors. such an occurrence can affect other economic agents. they may face illiquidity and even insolvency, affecting market interest rates, in turn leading to changes in trading activities and a disruption in market confidence payment systems are an essential component in preventing such occurrences and a technical mechanism for the central bank to step in order to challenge contagion or potential contagion. the interest of central banks in financial stability was largely triggered by the herstatt incident of june 26, 1974. german banks processed deutsche mark payments to herstatt bank in exchange for us dollars, to be delivered through herstatt correspondent account in new york. regulators, deciding to close the bank for lack of solvency immediately, failed to appreciate the time - zone difference between frankfurt and new york, leaving transactions half - completed. german banks did not receive their us dollar payments. although the herstatt incident did not lead to a financial - stability crisis, it made central banks aware of the risk and they started developing a continuous linked settlement platform, whereby commercial banks manage settlement of foreign exchange amongst themselves on a payment versus payment basis. cooperation in this area led central banks to share experiences covering other areas of payment systems and financial stability. well - functioning markets depend on the willingness to develop adequate solutions to ensure smooth functioning of payment systems. ironically, part of the problem stems from the very fact that technological advances speed up the payment systems and make them more reliable. this in turn enables banks to economise on liquid balances. bis central bankers ’ speeches a financial - stability crisis can start when a financial institution is unable to repay funding to the lender at the repayment date, whilst the lender needs the liquidity at that repayment date. fear of such occurrences happening simultaneously was an important element in