with the process of european integration. with our non - standard policy measures, we have preserved the functioning of the monetary policy transmission mechanism and thus been able to maintain a steady course for the objective of price stability inscribed in our mandate. potentially disastrous outcomes to the crisis have been thwarted ; valuable, though not infinite, time has been gained. but the ecb cannot replace the actions of national governments with respect to either economic policy effectiveness or democratic legitimacy. ultimately, it is up to governments to dispel once and for all the persistent uncertainties that markets perceive and citizens fear. the ultimate goal is political union, a stable and integrated europe with a common destiny. this will take a long time and the path will be an uncertain one. but in the meantime, it would be wrong not to act. a great deal has been achieved already. governments have implemented corrective actions for public finances. the fiscal compact envisages the principle of balanced budgets in national legislations. the esm provides for the possibility of financial assistance for countries in difficulty to keep the crisis from spreading. and the ecb ’ s non - standard policy measures will be complemented by banking union, a single supervisory mechanism for european banks. it is essential that all parties involved in europe ’ s large and complex path of reforms stick to their commitments. we have to proceed along this path with calm pragmatism, asking ourselves what the minimum requirements for completing economic and monetary union are. they are all within our reach, including fiscal reform and structural policies to support competitiveness and growth. along the way, we must remain guided by the principle that no country is justified in pursuing policies that harm other members of the community to which it belongs. the construction of an institutional architecture for europe based on this foundation is not only a response to a bis central bankers ’ speeches need for responsibility. without the sharing of national sovereignty at european level, the very sovereignty of individual states is in danger. this is the first lesson of the crisis for us europeans. it is not only a matter of economics and finance. we can, together with zygmunt bauman, extend it to much broader areas. he wrote : “ the european house is not to the detriment of national cultures, but provides a sort of roof covering local traditions, values and differences. and the paradox is that each country is much more at risk of losing its specific identity if it is exposed without protection, that is, without this european shield, to the global

partner no sign of banks taking greater risks since the end of 2002, mortgage claims have recorded annual growth rates of up to 6 %. this is quite substantial compared with the rather moderate trend in real estate prices. it appears that the expansion of mortgage claims has not been driven so much by real estate prices, but by the number of loan requests. consequently, the growing demand for loans is more likely attributable to factors other than the expectation of a speculative boom in real estate prices. the crucial question is the following : is the higher demand for loans due to excessively harsh competition among banks that has led to cheaper credit not reflecting the actual risks incurred? how has the relatively strong growth in mortgage loans impacted on bank risks? to answer this question, we took a closer look at the banks ’ risk behaviour. several indicators led us to believe that banks have hardly engaged in excessive risk taking. while it is true that interest rate margins, i. e. the spreads between mortgage rates and the banks ’ financing costs, had fallen slightly by mid - 2005, other bank expenses declined at the same time. in the final analysis, therefore, the profit margin was virtually constant or even slightly higher. the profit margin corresponds to the difference between the interest rate margin and the total operating expenses expressed in percent of the loan volume and – to reflect expected risks – of total value adjustments and provisions. the banks ’ profit margin thus also serves to cover unexpected risks. given that the profit margin has remained constant or moved slightly higher, the banks ’ risk - taking capacity has not diminished in spite of pressure on interest rate margins. this presupposes, however, that the banks have made realistic value adjustments and provisions. we currently assume that this is the case. moreover, average lending limits for mortgage loans have changed only insignificantly and may be regarded as cautious. for instance, the proportion of low - risk first mortgages – i. e. those mortgages with the lowest lending limit – is over 90 %. the criteria used in extending loans can also be rated as conservative. as a rule, assessments of a debtor ’ s future solvency are based on considerably higher interest rates than the current ones. mortgage debtors should therefore be able to meet their liabilities even if there is a marked increase in the interest rate level. our analysis focuses on system - relevant banks and on different groups of banks. we rely on aggregated data and on a random sampling of banks or groups of banks. problems with