different from individuals and firms, in the absence of war a sovereign country cannot be forced to see hellwig, martin ( 2011 ), p. 63. bis central bankers ’ speeches fulfill its financial duties. given that restriction, a global consensus has build that contracts and obligations between nations have to be binding although they are merely based on trust. the sovereign signature is the supreme symbol of a countries legal system. to breach an international agreement puts the credibility of the whole country in question, including its legal and economic system. these legal issues might not matter in the ivory towers of contemporary economists. in reality, however, markets can only function properly when they are embedded in a sound legal framework. during the 1980s and ‘ 90s parts of latin america and several countries of the former soviet union experienced severe social frictions when they were exposed to the dynamics of pedigreed free markets without the prior set - up and implementation of a sound legal system. beyond this theoretical reasoning there is empirical evidence a sovereign default is no panacea for heavily indebted countries. although there are individual cases in which restructuring was manageable and to that extent successful, these cases are rare. by contrast, most of the times restructuring of sovereign debt was disorderly, devastating and time consuming. the average length of the negotiations was 2½ years with the durations varying greatly. while sometimes negotiations have taken just a few months like in uruguay in 2003, in pakistan in 1999, in chile in 1990 or in romania in 1983. in other occasions it took many years to return into calmer waters, for example in vietnam from 1982 until 1998, jordan from 1989 to 1993, peru from 1983 to 1997 and argentina more recently. 2 all these reasons represent the foundation why governments try to avoid a default by all means. by consequence sovereign bonds – in particular in industrialized countries – are generally regarded as a largely risk - free investment. they form the basis for the risk free rate not being backed by equity. as such they are also the anchor for many transactions and valuations in the financial sector. the particular case of a monetary union the above mentioned arguments also apply to a monetary union like the euro area. but there are additional particularities. 1. due to the high level of integration in financial markets and trade, there is an elevated risk of contagion in case of a sovereign default in the euro area. the potential consequences for banks that would need to write off parts of their assets would be severe. negative feedback loops to

regarding financial institutions, their next generation models of risk management will have to incorporate the non - linearities and discontinuities of modern financial markets. we may have already moved toward some form of a new international monetary framework. to conclude this section, i remark that the wide range of coordinated responses to the crisis that we are witnessing, a characteristic feature of which has been the predominant role played by central banks, has perhaps sawn the seeds of a global monetary framework. i think of massive recapitalizations of systemically - large institutions and crossborder financial firms and the boosting of deposit insurance limits. at monetary policy level we have witnessed not only concerted action in lowering the policy rate but also narrowing the policy corridor and through asset swaps, provision of cross - border liquidity in us $ and € in unlimited amounts as well as a lengthening of the term funding. this coordination has been accompanied by the enlargement of counterparties either directly or indirectly and we have also seen a broadening of eligible collateral. this new emerging monetary policy framework adjusted in emergency times was required by large cross - border and globalized financial institutions and products. the more flexible and diversified framework of the ecb has, in this respect, proven its benchmark capacity in times of duress even if itself has been enhanced since. the world has moved toward a much more significant coordinated role of central banks in preserving world financial stability. after the times of duress we are living, it is likely that this de facto framework might evolve toward a more institutionalized set with some ingredients of a world system of information sharing, with world collateral and world monetary policy. from a system of national regulators and supervisors to an eu stability framework financial stability frameworks in the eu are largely national. each country ’ s supervisory authorities drive their legitimacy from national parliaments, are subject to national accountability mechanisms, and are financed nationally. each country ’ s authority is these features of crises were already present in the case of continental illinois ( 1984 ), and more recently in the barings ’ crisis ( 1995 ) and ltcm collapse ( 1998 ). responsible for the consolidated supervision of financial institutions domiciled in that country for which it is the home supervisor. host supervisors are responsible for subsidiaries of institutions from other countries operating in their territories. national authorities are organized differently in the eu, e. g., as a single authority, or according to a sectoral model. their mandates also differ with some including financial stability,