the fiscal rulebook and the introduction of the european stability mechanism were big steps towards further emu integration. however, in a semi - permanent mode of crisis - management, policy makers had little to no time to involve their constituencies. the magnitude of the euro area debt crisis was amplified by the fact that channels through which macroeconomic stabilization could take place, were insufficiently developed. as a result, a large part of the adjustment burden was placed on monetary policy. the interventions of the ecb have bought time to enhance the institutional framework and for individual member states to implement much needed reforms. the question however is, has this time been put to a sufficiently productive use? i am afraid that asking the question boils down to answering it. the underlying economic performance clearly suggests this not to be the case. since the start of the emu, convergence was visible between high - and low per capita income member states. when taking a closer look, however, we see that real convergence before the crisis was mainly based on the activation of more production factors, in particular in terms of an inflow of external capital flows into the euro area periphery. developments in total factor productivity, on the other hand, had negligible impact on the convergence of real per capita income. as we know from economic literature, productivity growth is indispensable for sustainable gdp growth. after all, it is the only source of sustainable increases in prosperity. but the inflow of foreign capital had mostly stimulated activity in less productive, non - tradeable sectors, including real estate. when these macroeconomic imbalances adjusted during the crisis, real convergence largely reversed. whereas now, after the crisis, real convergence has resumed in some parts of the euro area, we see that this reflects mostly a recovery in labor markets, while the cross - border flows of capital have stagnated and there are again few signs of a more efficient allocation of production factors. this suggests that member states are still not reaping the full benefits of their participation in emu and may leave their economies again vulnerable to shocks. in this light the recent slowdown in euro area activity, albeit largely caused by external trade shocks, is a firm reminder : further strengthening of emu is necessary. without additional action, once more monetary policy will risk ending up as the only, and perhaps stuttering, engine supporting growth. against this backdrop, i would like to finish my introduction with three recommendations, which i believe should be prioritized. fout!

to being an exclusive deposit insurance system. 5. over nearly 50 years, the dicgc has evolved and moved up the value chain – learning by doing as it were – and met many challenges along the way. by far the biggest challenge came in 2001 when a large co - operative bank in the state of gujarat was in trouble. since several banks, particularly many small co - operative banks, had exposure to this bank, its failure had the potential to precipitate a crisis in the banking industry. the government and the reserve bank put in place resolution of this bank through a restructuring programme. the key element of this programme was proactive action by the dicgc towards prompt payment of claims to the depositors of the bank. this action by dicgc ensured that panic did not spread. global crisis and deposit insurance 6. let me now turn to the recent financial crisis. though the crisis impacted the entire world, it affected different countries in different ways. after the collapse of lehman brothers in mid - september 2008, there was an abrupt breakdown of trust, which spread rapidly from the united states to other advanced economies, causing financial markets in all advanced economies go into seizure. suddenly, there was a great deal of uncertainty about the extent of losses, the ability of banks to withstand those losses, the extent of risk in the system, where it lay and how it might explode. this uncertainty triggered unprecedented panic and almost totally paralyzed the entire chain of financial intermediation. banks hoarded liquidity. credit, bond and equity markets nearly froze. several venerable financial institutions came to the brink of collapse. massive deleveraging drove down asset prices setting off a vicious cycle. in such a situation, governments and regulators had to take extraordinary measures in a big way. 7. not surprisingly, deposit insurance emerged as the most visible part of the financial safety - net in arresting a panic reaction. several deposit insurance systems increased their insurance coverage limits ; in some cases the governments extended blanket deposit guarantee. these measures went a long way in restoring public confidence in the banking system in economies where it came under serious threat. global crisis and india ’ s response 8. that india was hit by the crisis dismayed many people. in the years before the crisis, the decoupling theory gained intellectual ascendancy. this theory held that even if advanced economies went into a downturn, emerging market economies would not be affected because of their improved policy framework, robust foreign exchange reserves, and sound banking systems. the