jointly liable for the debts of other euro - area countries but would not be able to keep them in check. however, in this framework, mutual assistance must be granted only as a last resort, must be strictly conditional and must involve considerable interest rate premiums, in order to give countries an incentive to balance their government budgets. 3. 3 financial market reform as a necessary addition national fiscal policymakers are ultimately responsible for convincing market participants to invest in their sovereign bonds. the recent past has served as a painful reminder that the status of sovereign bonds as a de facto risk - free asset has to be defended time and again. and rightly so : the only way to get governments to live within their means is if the financial markets reward good fiscal policy and punish bad fiscal policy. however, in order to have a disciplining effect, the financial markets need a firm set of rules – as was made abundantly clear by the crisis. and significant progress has already been made in adapting the rules. the reform of the capital framework, which will improve the quantity and quality of banks ’ capital and thus their capacity to absorb losses, is certainly a particularly welcome development. increasing the amount of losses the banks ’ investors are able, and required, to take, reduces the danger of taxpayers once again having to foot the bill. the phenomenon of systemically important banks, however, also shows that basel iii is by no means the final step. the internationally agreed rules for dealing with the “ too - big - tofail ” issue now have to be implemented quickly – and in an internationally consistent manner. the oversight and, if necessary, regulation of the shadow banking system remain atop the reform agenda. the laundry list of regulatory reforms continues to be very long, and its details are often so complex that it is difficult to explain to the general public. this opens the door to populist calls for seemingly simple solutions – such as a financial transactions tax. we at the bundesbank are of the view that, if at all, such a tax would have to be introduced at least in all major financial centres. looking at the financial markets and their regulation, however, i would like to mention one more thing. the sovereign debt crisis is shining a new light on a commonly held assumption, namely, that crises are caused by unfettered markets and can be avoided only by giving the state more space. however, the sovereign debt crisis has shown quite clearly that even sovereign debtors can fail. of course, the

if we seek to align with international leaders, we must take care not to get stuck with what has been designed so far. having said that, i hasten to assure everyone that we believe stability to be the greatest virtue of the pension system. still, the lithuanian pension system will require three further improvements. the first one should ensure a closer and definitely more obvious connection between contributions and benefits. this is an essential condition both for achieving pension - system fairness and for strengthening incentives for residents to pay contributions. the second aim is greater transparency. having strengthened the connection between contributions and benefits, the first pension pillar should shift towards a model based on individual accounts ( notional defined contribution model ) – like the one currently in operation in sweden, norway, poland and other european countries. such a system, ideally operating in real time, would clearly show the correlation between one ’ s 3 / 4 bis central bankers'speeches social insurance contributions and the level of his or her future pension. a virtual individual account would demonstrate that unaccounted income reduces the accumulative pension in the first pillar, thus encouraging the payment of contributions. the third direction concerns information and education. clear communication on the old - age saving system is one of the most reliable means for managing risks of short - sighted choices. and – let ’ s face it – there is such a threat if, after the entry into force of the approved changes of the pension system, people decide to opt for slightly higher income today, rather than in the future. currently, these are the three missing pieces of the puzzle of the lithuanian pension system. colleagues, i do not wish to be a prophet of doom, but the risks facing the lithuanian pension system are very real. unless we accomplish urgent work, we will soon face them – if not just round the corner, then around another couple of turns. in order to create a truly sustainable – and i insist sustainable in the long run – pension system in which lithuanians will have trust, we must strive for consensus, consistency and determination for further steps. today, we have the opportunity to talk about these issues boldly, openly and in good faith. i wish you all fruitful discussions and valuable insights, which may contribute to future policy decisions. thank you. 4 / 4 bis central bankers'speeches