be beneficial in implementing reform priorities identified in the european semester. if euro area economies had a greater level of resilience, they would also be more likely to react to a common shock in a similar way, thus reducing costly macroeconomic divergences which cannot be addressed by our single monetary policy. developing sound economic structures and institutions would also lift potential output. second, as recently advocated by the ecb in its opinion on the establishment of a european investment stabilisation function1, the euro area needs a fiscal instrument to help maintain convergence in the face of large exogenous shocks, thereby also supporting the single monetary policy. a fiscal stabilisation function should focus on cyclical developments, and it should be conditional on economic and fiscal policies being sound and fully respecting the eu ’ s governance framework. this would in turn contribute to macroeconomic stability both at the euro area level and, crucially, in each of its member states. and it would allow action to be taken before recourse to the esm needs to be made. for situations where market instability materialises, the esm remains essential to credibly address the causes of financial instability and contagion. it is important that the esm is provided with the financial instruments necessary to achieve its objectives and to support the banking union. i thus welcome the ongoing discussions on making the esm more effective, as also advocated in an ecb opinion on the subject2. last but not least, completing the banking union and building an ambitious capital markets union are essential. if we want to avoid repeating the mistakes of the past, it is crucial to strengthen the resilience and integration of the financial sector, thereby also improving the transmission of our monetary policy. of course, the policy agenda i have just outlined would support the ecb ’ s monetary policy. however, its benefits would not end there. the main motivation for these policy initiatives would be to deliver the tangible benefits of the common currency for all europeans. their support for the euro has increased as emu has recovered from the crisis, and it now stands at a record high. we need to ensure they are not disappointed. conclusions i would like to end by saying that the coming days, weeks and months until the end of this legislature will be decisive in making concrete steps on emu reform. this institution has repeatedly played a crucial and constructive role in ensuring that such discussions focus on a truly european dimension and on building effective common institutions. we know that such a shift from

than $ 62 trillion within 8 years. in 2004, outstanding mortgages held in non - agency mbs in the us were just us $ 670 billion. it tripled to over us $ 2 trillion within 2 years. it is a similar story with the origination of subprime mortgages. in the same period, global cdo issuance more than tripled from us $ 157 billion to about us $ 550 billion. these assets were held in banks and non - banks globally. when the financial crisis struck, the world was shocked not only by its severity, but also by the speed in the transmission of shocks throughout financial markets. there is no better illustration of how new sources of systemic risk can build up rapidly. 6. in a similar vein, the sharp deterioration of the fiscal positions of many governments has also led to a re - assessment of sovereign risks. about 10 years ago, investors were concerned that the strong budget surplus of the us federal government might lead to a severe reduction in the supply of us treasuries. today, bond vigilantes are focusing attention on not just the short term fiscal health of governments, but on the impact of demographic changes, large entitlement benefits and unfunded pension liabilities on the longer - term fiscal health of these governments. 7. my third observation is the speed of structural changes in emerging economies and transformation in the patterns of global trade and investment. as these are superimposed on cyclical changes, it is often difficult to disentangle the two. emerging markets, especially asia, have weathered the crisis relatively well, and recovered quickly. this year, the imf expects emerging asia to grow by nearly 7 %, almost double the rate forecast for the global economy as a whole. many analysts expect the differential in growth rate to persist in the coming decade. the global economy went through stagflation in the 1970s, disinflation in the 1980s, and a roaring decade in the 1990s. in 2000s, we had the dotcom bubble, and a severe financial crisis. how the coming decade will turn out, especially for emerging economies, will change many of the risks and return assumptions on a wide range of asset classes. dealing with the implications 8. the growing complexity and interconnectedness in financial and economic systems, the increasing speed of change, as well as the ongoing structural changes in emerging markets will have profound impacts on all sectors of the global financial industry. these driving forces will shape the evolution of the financial