a stable monetary union, when we frame the basic ingredients within a crisis - proof institutional set - up to provide the right incentives for responsible behaviour. the particular architecture of monetary union doesn ’ t make things any easier. in the euro area one single monetary policy co - exists with 19 autonomous fiscal and economic policies. the autonomy reflects and enables the diversity of member states in terms of their economic and social structures, which is an expression of our societies ’ distinct preferences and identities. in my view, such great variety is an asset and contributes to europe ’ s richness. it is not by chance that the official motto of the european union is “ in varietate concordia ” – “ united in diversity ". but the asymmetric construction also makes the monetary union vulnerable. the original recipe as enshrined in the maastricht treaty focussed on a no - bailout clause that would unleash the disciplining power of financial markets. this framework did not prevent the crisis, nor did it provide any mechanisms or tools to overcome it. since the crisis, however, the design of the union has already been adapted in some important aspects. the establishment of the esm as a permanent rescue facility and the creation of the banking union remedied design weaknesses that were either ignored or overlooked when monetary union was founded. however, the euro area is not yet permanently crisis - proof. and that ’ s why there is a broad consensus that further institutional reforms are needed. the proposals that are currently under discussion differ on one point in particular, namely on the extent to which risks should be shared. some place their faith in greater joint liability, while others would like to strengthen individual responsibility. however, the true challenge consists in striking a balance between actions and liability. that means the decision - making power and responsibility for the effects of the decision have to be placed on the same level. responsible decisions are taken only if the decision - makers also bear the consequences. why, for example, should a government refrain from risky policies if, at the end of the day, the community has to pay the bill? in the 2010 sequel to the classic movie “ wall street ” the fictional character gordon gekko, played by michael douglas, explains the problem more eloquently than i ever could : “ moral hazard is when somebody takes your money and is not responsible for it. " rebalancing actions and liability by no means rules out a greater sharing of risks. in order to maintain the

1 assuming that the current outlook will be sustained, risks to financial stability will be limited. a gradual upturn in interest rates would strengthen the stability of the financial system. banks may see their interest margins recover – in particular if interest rates stay out of negative territory. life insurers and pension institutions would find it easier to generate returns and to honour promised payments to customers. but how would markets respond to an unforeseen economic slowdown? what if interest rates stay low for much longer? what if political risks materialize and risk premiums increase abruptly? such unexpected events may affect many market participants at the same time – thus potentially threatening the functioning of the entire financial system. a resilient financial system needs to be in a position to weather also unexpected, but by no means unrealistic, scenarios. during the extended spell of low interest rates, risk has been 1 / 6 bis central bankers'speeches growing in the global financial system. low interest rates and strong growth might cause risks to be underestimated. these risks can be mutually reinforcing in the financial system. therefore, the resilience of the financial system might be overstated. the good economic conditions might lead markets participants to ignore the risks of scenarios involving heavy losses. gazing into the rear view mirror for too long increases the risk of overlooking hazards on the road ahead. the longer booms persist, the greater the inclination to extrapolate current trends, and the weaker are incentives to take precautions against unforeseen events. if the real economy takes a worse path than expected, that would also drive up credit risk. in germany, for example, the number of insolvencies has almost halved in the past years, dropping from just over 39, 300 in the year 2003 to a little more than 20, 000 in the year 2017 ( federal statistical office of germany 2018 ). 2 to put that number into perspective : there are just over 11, 000 municipalities in germany. hence, there has been an average of less than two insolvencies per municipality. reflecting these numbers, credit risk provisioning for german banks is currently at record lows. moreover, we know from empirical studies that entry and exit of firms is an important mechanism behind innovation and, ultimately, economic growth ( foster, grim, haltiwanger, and wolf 2018 ). yet, low default rates on loans are a backward - looking indicator and do not provide a good proxy for future risks. larger banks use their