the saying was : “ tu felix austria, nube ", or “ thou happy austria, marry "? but it did not mean the end of war. even though many small states coalesced to form larger nations in the 19th century ( for example germany and italy ), that did not mean the end of war, but the start of more or less “ holy alliances? that were continuously shifting. thus larger nations tried to grow even bigger by grabbing up smaller nation states, and we had at least one war per generation on this continent. after world war ii we tried another way. as a consequence, larger states were to give up their sovereignty in two key areas, which used to be important for the war industry, coal and steel. they thus vowed to renounce war and yielded a disproportionately large share of decision - making in common affairs to smaller countries. above and beyond that a referee was appointed, a european centralized executive, even though its power was to be limited. as a consequence we now have inside the european union a totally new situation in which for the first time in centuries, in europe, one generation has been able to accumulate wealth and transfer it to the next generation, so creating a very strong sentiment of support in most countries of the continent and a quest for yet more progress in this sense which is still present in the agenda that europe is pursuing right now. of course the question could be asked whether this equilibrium of power can still be maintained in an enlarged union, since the union at the outset was not designed for such a large number of countries, and especially since many of the new countries belong to the category of small member states. further, they have only recently recovered their sovereignty and might be rather reluctant to yield it again so soon to a super - power. don ’ t forget that the latest new member countries represent less in economic terms than previous enlargements from 6 to 9 or 9 to 12. all the new countries have also been very closely associated with the history of “ core europe ". this question will of course be even more valid for future enlargements. but the divergences in europe are not only due to the different histories of the countries of the continent, but also because different paths for development were taken by different nations, which brought about different policy approaches. in this respect the role of ideology is prominent. in most countries history shaped the understanding that each people has of the role and rights of the individual versus the

u. s. mortgage - related assets created prior to september 17, 2008. in addition, a $ 50bn u. s. state guarantee became necessary to stop institutional investors withdrawing funds from u. s. money markets funds. hedge funds and money market funds are facing intense redemption pressures and several emerging markets are experiencing financial difficulties and calls for imf support are suddenly back on the agenda. interest rates have been further cut in several countries and deposit guarantees increased. in fine, leaders from 15 nations committed to a coordinated effort to bolster financial systems with rescue packages totaling nearly 1. 9tn euros and central banks offered unlimited dollar funding to banks in short - and medium - term maturities at fixed rates and longer maturities. financial stability and liquidity, and the evolution of the supervision paradigm it is noteworthy that there is neither a widely agreed definition of financial stability nor of liquidity. definitions of financial stability and liquidity vary significantly in academic papers and among policy makers. definitions are more than amusing conceptual constructs ; they are useful tools to discuss the evolution of financial frameworks and the role of central banks in financial stability. i suggest as definition of financial stability a dynamic one : i view financial stability as a range of states in which the financial system facilitates the performance of the monetary economy, and is able to dissipate financial imbalances originated either endogenously or as a result of adverse unanticipated events. the key elements of the definition are that financial stability is best viewed as a process and as such, it is uncertain, it has intertemporal and evolutionary features. in addition, this process occurs in a monetary economy, one based on fiat money, where resources and risks are mobilized efficiently. finally, the process has self - equilibrating mechanisms that preclude that arising imbalances trigger a crisis. “ liquidity is an elusive concept ”. that is the first sentence of the banque de france ’ s february 2008 financial stability review. as with financial stability, i suggest as working definition of liquidity a dynamic one : i view liquidity as the ability of market participants to take risks on each other as they seek to fund asset purchases and meet obligations, both over normal and stressful environments. as it was the case with the definition of financial stability, this definition of liquidity stresses its dynamic aspects. the endogeneity of liquidity indicates that it is best viewed as the outcome of confidence among market participants on the risk distribution