an appropriate transition period. also to be noted is that these standards are global minimum standards : national regulators or supervisors can set tougher standards if they deem that appropriate. on your last point i will say that it is imperative that we make as sure as possible that a new crisis of that dimension would not erupt again. we could avoid a great depression only because governments, in all advanced economies, provided the financial sector with considerable public support. this in my view will not be repeated because our democracies will not mobilize such an amount of tax payers ’ financial risk taking twice. this is why it is absolutely essential that we make the whole financial system much more resilient, including through the basel iii agreement. politis : some still insist that the banking problems still exist. we have seen ireland just recently injecting capital into one of its major banks. are you confident about the soundness of euro zone banks? trichet : as you know, a comprehensive stress test exercise, covering 91 eu banks, was finalized in late july. the ecb welcomed this exercise, which was prepared and conducted by the committee of european banking supervisors ( cebs ) and national supervisory authorities, in close cooperation with the ecb. this stress - testing exercise was comprehensive and rigorous, and the results confirmed the resilience of eu and euro area banking systems as a whole to severe economic and financial shocks. the stress test has also significantly enhanced transparency regarding the current financial conditions and risk exposures of the 91 institutions that participated in the exercise. we also welcome the commitment made by national authorities with regard to the provision of support facilities for banks where private sector means are insufficient. sound balance sheets, effective risk management and transparent, robust business models are key to strengthening banks ’ resilience to shocks and to ensuring adequate access to finance, thereby laying the foundations for sustainable growth, job creation and financial stability. politis : will the break up of banks into investment banks and traditional banks make the ecb ’ s and other regulators task easier? will this be beneficial for the whole economy in general? trichet : the proposals aiming at affecting the structure of the financial sector, by limiting the scope of activities an institution can undertake, are important contributions to the debate on how to best regulate the banking sector. however, as regard the specific european framework, i believe that introducing a separation between investment and commercial banking would raise a number of complex issues. first, it would be in contradiction with the established

the ecb – annual inflation less than two, but close to two percent – it is imperative for each economy belonging to this area to ensure that national increases of wages, of unit labour costs and of prices are broadly in line with the euro area average. this is essential. otherwise the economy will lose competitiveness, year after year, and will trigger low growth and low employment. this is also true for cyprus. politis : for the cyprus economy, several organisations ( imf, european commission etc ) list as major threats its big government sector, its current account deficit and the projection for its mid term pension and health costs. with the exception of the first ( current fiscal deficit ) for the others, the european commission can only issue warnings. is the ecb ’ s assessment on the same lines? trichet : at the time when cyprus joined the euro area it featured a relatively sound fiscal position. now the situation is different : the rapid aging of the population ( one of the fastest across eu countries ) and the deficit generated via increases in the public wage bill and social transfers pose very serious structural problems. these have to be addressed by means of a strong fiscal consolidation strategy and an important pension reform to ensure the long - term sustainability of the pension system. as you see, the ecb fully shares the diagnosis of the european commission and of the imf. politis : in your keynote address at the eurofi financial forum 2010 you described the basel iii reform package as a cornerstone intended to put the global financial system on a sounder footing. some academics call the whole basel framework an excuse for mainly big banks and countries that do not want really to take the drastic and effective reform measures needed. can the eu citizens be assured that the new framework ( not just basel iii ) will prevent a financial crisis of a similar of what we experienced two years ago? trichet : on basel concretely : the agreement reached has two great achievements. first, the end results are tough standards. the required common equity has been increased from 2 % to 7 % ; this is an increase by a factor of 3. 5. ( for some institutions, having 1 % capital, it ’ s 7 times bigger ). second, the agreement is global. it encompasses industrial economies as well as emerging economies. overall, i consider that our agreement strikes the right balance between the objective of a very significant strengthening of the resilience of the financial sector while not endangering the progressive consolidation of the recovery, thanks to