the stability of the financial system. progress has doubtless been made on the road to a more resilient financial system : banks ’ capitalisation is better now than before the crisis, preparations for the single supervisory bis central bankers ’ speeches mechanism are in full swing, and a single resolution mechanism for banks has been agreed. nonetheless, further regulatory measures are required to loosen the “ doom loop ” between sovereigns and banks. in future, banks should have to provide capital backing for loans to governments. and there should be ceilings for lending to governments, as there are for loans to the private sector. moreover, rapid regulation of the shadow banking sector is needed to stop regulation of the banking sector from leading to financial business increasingly being moved to unregulated market segments. bertolt brecht said it all in the threepenny opera when he wrote : “ there are some who are in darkness, and the others are in the light, and you see the ones in brightness, those in darkness drop from sight. ” more light therefore needs to be shone into the financial system. and that is precisely the objective of many current regulatory initiatives. the bundesbank and the german finance minister are pulling together to make them happen. 6. easing the burden on the eurosystem a stable regulatory framework for the monetary union would also protect the eurosystem from permanently acting as crisis manager. the eurosystem ’ s crisis measures have helped prevent the crisis from escalating. however, some of these measures have, as i have repeatedly pointed out, taken the eurosystem to the outer edge of its mandate. meanwhile, the comprehensive measures agreed by the governing council of the ecb at the beginning of june cannot, in my opinion, be compared with the crisis measures taken two or three years ago. the current measures do not provide for individual countries ’ liability risks to be taken onto the eurosystem ’ s balance sheet. the task now is to prevent too prolonged a period of low inflation. for that could paralyse the euro - area ’ s economy. savers are understandably angry at extremely low interest rates that are more than eaten up by inflation. however, interest rates on savings have been lower than the rate of inflation on numerous occasions, even during the d - mark era. the june decision was preceded by much soul - searching as to how best to proceed. for these measures too are associated with risks and side - effects, which we would be wrong to play down. in

has a set of rules, an institutional framework. this framework needs to be reformed in order to make monetary union more crisis - resistant. it is not sufficiently stable as it stands. while it is true that fiscal stabilisation programmes and effective assistance on the part of the eurosystem have succeeded in preventing the crisis from flaring up, it was this very policy which brought about a precarious situation : liability for the crisis countries ’ debt has essentially been communitised while fiscal policy remains a matter for national policymakers. that doesn ’ t augur well for the future. liability is a core element of our economic system. that ’ s something every entrepreneur knows – after all, doing business means picking up the tab if things go wrong. that ’ s why i think the euro area has reached a kind of crossroads : either we proceed towards a fiscal union in the sense of establishing joint liability with centralised rights to intervene in fiscal matters at the european level, or we turn back to the original framework as specified in the maastricht treaty and reinforce the principle of individual national responsibility. both paths can put liability and control back on an even keel and bring risks and opportunities into alignment. which path is the right one to take is a matter for policymakers to decide. i believe that governments and the public at large are currently less than willing to take the step towards a bona fide fiscal union, seeing as this would mean ceding a great deal of national sovereignty in fiscal policy matters. bis central bankers ’ speeches those calling for greater mutual liability are often the very ones who reject recommendations from brussels as meddling in national matters. italian prime minister matteo renzi, for instance, likens the eu to an “ old boring aunt telling us what to do ”. it was a long - held belief, above all in germany, that monetary union would, out of necessity as it were, culminate in political union. addressing the bundestag in november 1991, helmut kohl remarked that “ the idea of sustaining economic and monetary union over time without political union is a fallacy ”. the bundesbank likewise stressed at the time that political union was crucial if monetary union was to prove durable. viewed with hindsight, i would qualify that statement somewhat to say that monetary union can also function without political union provided that the principle of individual national responsibility is adhered to. this view is supported by udo di fabio, a former judge at the federal constitutional court, who