good incentives and governance so that it can be broadly supported by both the core and bis central bankers ’ speeches peripheral countries. in this respect, it is important to recall that the architects of emu from the outset defined it as a project of economic and monetary union. i view the task of transitioning to a pan - european banking union with the ecb as the primary overseer of the european banking system as a critically important next step. successfully moving to a pan - european banking union would generate a large number of benefits : • it would demonstrate a commitment toward greater integration that would enhance the credibility that monetary union is indeed irreversible. • it would help to sever the link between the fiscal position of individual governments and the health of their banks. • by eliminating the scope for national bias, it would strengthen market confidence that large hidden losses are not likely to be buried within the banking system. • it would move against fragmentation and promote re - integration of the european banking system. • it would help to make monetary policy more effective in supporting activity in the peripheral countries. a critical problem in europe right now is that private borrowing costs are very low in countries like germany where the economy is operating close to full capacity, but quite high in countries like italy and spain – which are struggling in terms of economic performance. the monetary policy transmission channels in europe are impaired. banking union would make them work better. • it would underscore the fact that a euro is a euro and will remain a euro throughout europe, reducing perceptions of redenomination risk. this would make depositors less prone to move their funds from the periphery to the core and strengthen the resiliency of the system against shocks. • it would help foster greater integration of the european economy, with potentially significant macroeconomic benefits. in short, banking union has the potential to make a powerful contribution to eurozone stability and growth, both in the short term and in the long term. now, will moving to a pan - european banking system be easy? of course not. it will require a common set of standards to be applied across the whole system. this may well reveal shortcomings among particular banks and the burden is not likely to fall evenly across the european union. it will be important to identify the sources of capital that will fill any such holes in order to ensure ongoing stability and to avoid constraining the availability of credit. the process of banking union appropriately begins with a single supervisory mechanism. but, a common

of economic integration. with the introduction of the euro and the conduct of a single monetary policy by the ecb, with the emergence of an increasingly integrated financial market and a single euro exchange rate, the notion of an " eu economy " has gained real substance. as a consequence, the eu has come to be recognised in the world as an entity in its own right. further efforts to develop a " single voice " for europe in international economic and financial affairs are set to reinforce this perception. with regard to deeper political integration, i believe that the eu demonstrated in nice that it is ready to gradually move towards strengthening the truly european element of decision - making by introducing more qualified majority voting - even though many people expected, and hoped for, greater progress on this issue. seen from the perspective of independent central bankers - with their necessary distance from politics - it appears that the main accomplishment of the nice summit was not necessarily the conclusion of the intergovernmental conference on institutional reform. rather, the summit's main success lies in what it set in motion : the launch of a thorough and comprehensive discussion about " who does what " at the european, national and regional levels of government. the results of nice will prepare the european union for the arrival of new members. notwithstanding certain flaws and shortcomings in the legal details, the greater europe will have its institutional framework. the focus of attention will now shift again to the candidate countries'preparations for eu membership. while a certain impatience on the part of the candidate countries with regard to eu accession, and even a speedy entry into the euro area, is understandable, the full impact of eu membership should be realistically assessed, in particular the consequences of the often intense competition within the single market. all candidate countries currently negotiating eu accession are committed to eventually adopting the euro ; there will be no " opt - outs ". provided that the future new member states demonstrate their ability to fulfil the maastricht criteria in a sustainable manner, they will, in time, replace their currencies with the euro. as i explained in our previous exchange of views, the euro will thus indeed contribute to healing the economic divisions in europe. at the same time, it is clear to me - and i imagine you would agree - that this will be a gradual process and a long - term rather than a short - term prospect. nevertheless, in order to ensure that the prospective expansions of the euro area run smoothly, the ecb, and the national