: clear objectives, willingness to co - operate, and openness to “ newcomers ”. 1. from the beginning, europe has been set on a clear course and sailed with a clear mission. this is to achieve prosperity, peace, and stability for the citizens of europe. 2. member states work together as a team. they are willing to pool their specific abilities and national sovereignties. in a co - operative manner - unparalleled to any international organisation - they overcome differences and manage diversity. they share the conviction that they should find european solutions to european problems. the eurosystem is a perfect example for the co - operative approach that characterises the union. 3. europe has always been open for new member states. membership is neither limited nor exclusive. clear rules and procedures pave the way for newcomers to join the union. over time, the ship has grown in size and quality. new members joined and new competencies were acquired. in the nineties, the ship was given an important additional mast. this new mast is monetary union. its strong sails push the ship further. they reinforce the strength of the eu and generate stability. in the coming months, this ship will be restructured considerably and will expand its crew significantly. it is doing this at sea. the day - to - day work of the eu continues ; there is no break or pause that allows for practices or trial runs. the key challenge is to accomplish these tasks while keeping the three qualities. these qualities are worth maintaining. they have made the eu to what it is today. let me now concentrate on the first task, the constitution. the constitution the eu has diverted from its traditional path of recurring treaty reforms. it has decided to give itself a constitution. those of you who come from central and eastern european countries will be familiar with a process of adopting a constitution. in your countries the new constitutions have laid the foundation for an open society and democratic institutions. in the case of the eu, the new constitution does not signify the start of a new political era. why then has the eu embarked on a constitutional process? speaking as an outside observer to the process, it seems to me that the constitution is to serve two purposes. the first purpose is renovation. the eu has to be made fit for the future. it needs wellfunctioning decision - making procedures and effective institutions. this is not only in view of enlargement but also in order to adapt to new international demands and changing economic

for the regulation of specific activities is not always a simple task, nor is the establishment of expectations that accompanies regulation and supervision always subject to scientific precision. that being said, one does not need to look any further than the proposed basel iii endgame capital rules to find reforms that are excessively calibrated and disproportionate to risk. this proposal contemplated a 20 percent increase in riskweighted assets across bank holding companies subject to the rule. public commenters raised significant concerns that the limited analysis included with the basel iii proposal may have significantly understated the scope of the capital increase. in response to this concern, the board launched a data collection to gather more information from banks to better understand the impacts of the proposal, the results of which will hopefully be released soon. as i have discussed in the past, if implemented as proposed, the effects are predictable : higher costs of capital for banks, higher costs of services for customers, less availability and - 12 narrower selection of services, and increased concentration in the providers of financial products and services. 13 driving risk out of the regulated banking system could lead to marginal improvements in bank safety and soundness, but the consequences for financial stability could be severely adverse. as i noted above, we have already seen reduced market activity driven by the leverage ratio and other regulatory constraints on bank balance sheets. we have also seen banks tighten credit standards and reduce lending activity, which often leads to a credit “ gap ” left to be filled by nonbank lenders. as activity and risk migrates from the banking system to nonbanks, we should ask how these shifts will impact financial stability over the long run, even though we have less visibility and insight once they leave the banking system. the basel iii capital rules are only a subset of regulatory proposals for change that involve the challenging task of achieving the right calibration to risk over time. a glut of new bank regulatory reforms and supervisory guidance raise this concern, including revisions to the g - sib surcharge, new long - term debt requirements, amended resolution plan guidance, contemplated changes to the regulatory approval of merger and acquisition activity, and revisions to the interchange fee cap. the cumulative effects of these regulatory proposals are significant. this cautionary note does not mean that i am opposed to appropriate reforms to bank regulation and supervision — both tools must adapt to changing conditions and risks. last year we saw significant stress in the banking system due to a few bank failures and the persistence of