to carry it. the " slicing and tranching " process allowed banks to offload credit risk from their balance sheets and transfer it to other financial investors. but, historically, securitization is borne out of the more simple desire to shortcut banking intermediation by using markets to directly match the needs of lenders and borrowers. since both have different liquidity preferences, this usually involves the issuance of tradable – i. e. liquid - securities which can be sold to the ultimate investors. thus, a well functioning securitized system would meet two characteristics : ( 1 ) allow for a permanent reallocation of risk between market participants according to their preferences, expectations and risk aversion ; and ( 2 ) make liquidity ( market liquidity ) permanently available throughout the system. the question we need to ask is how those two characteristics relate to each other. in other words, what is the link between liquidity and risk? here we could use a very simple framework. investors have a perception that a market is liquid if they feel they can trade their assets ( and positions ) with no constraints and without moving prices by too wide a margin. liquidity exists when there are counterparties available to trade at any moment in time. it follows that liquidity is both an expression and a consequence of the ability of market participants to take risks on each other. for liquidity to exist, therefore, there must be a general sense, in the market, that each participant ( or, at least, most of them ) are suitably equipped to face the risks they are taking. this is what we call confidence. looking at discussions on the current phase of market turmoil, two views have emerged as to what determines confidence. the first view emphasizes information and transparency. crisis of confidence and drying up of liquidity occur when there is too much opacity in the system, when investors are unable to assess risks, or when market participants do not trust whatever information is available. one good example is valuation. valuation of complex instruments is currently at the forefront of discussions between regulators, market participants and investors. there is, of course, a circularity involved, since liquidity depends on valuation, fair value must be based on a market price, and the ability to price an asset itself depends on sufficient liquidity in the market. the difficulty to get out of this circularity in periods of stress is currently creating significant uncertainty. another example is risk measurement. in a securitized

. let me now turn to the core of my message : the need to strengthen our monetary union by making concrete progress on economic union. there is currently a window of opportunity : the economic recovery is robust, and many euro area reform proposals point in the same direction, including the commission roadmap of december 2017, president macron ’ s speech at the sorbonne last september and, more recently, the european chapter of the german coalition agreement. the outcome of the recent elections in italy shows that we can ’ t waste any more time with theoretical debates. we as central bankers are concerned here with avoiding overburdening monetary policy by the next recession, but it is of course the responsibility of politicians to act. 1 / the first cliche that emerges when we talk about reforming the euro area is the opposition between vision – be it french or otherwise – and pragmatism – seen as a northern european virtue. we must be practical, and take real needs and particularly those of businesses and entrepreneurs as our starting point. at the same time, we need a political ambition if we are to act – call it a “ vision ” if you wish. today, the key to growth in the euro area is investment and innovation. but to innovate, in digital technology or in the energy transition for example, companies need to be able to take more risks, which requires more equity financing over the 1 / 3 bis central bankers'speeches long term, rather than debt financing. the euro area is seriously lagging behind in this respect : equity capital amounted to only 73 % of gdp in the third quarter of 2017, compared to 123 % in the united states. this brings me to my first solution for strengthening our economic union : a european - level " financing union for investment and innovation ", which would better channel the euro area ’ s eur 350 billion savings surplus into equity financing for innovation, in digital or renewable energy technologies. this financing union should bring together existing initiatives and, as a priority, the capital markets union, but also the banking union and the juncker investment plan. there is no tremendous political obstacle on this rather technical agenda. within the governing council of the ecb, we all find it extremely regrettable that the capital markets union is currently being overlooked and last thursday we urged that “ specific and decisive steps ” be taken in that field. 2 / the second cliche is the complacent idea that action at the european level would be a substitute for national reforms. let