but we have seen during the crisis that the mere prospect of euro area countries failing creates negative and possibly self - fulfilling feedback loops, at great cost to the euro area. without a european budget with a stabilising role, there have to be mechanisms for mutual support in the euro area. and as a condition, there have to be stronger economic governance and mutual control. the basic premise of the new social contract between euro area countries, then, is that countries have to abide by the rules of the community, and when they do, they become eligible for mutual support. euro area governments have earmarked €700 billion for countries that get into difficulty, a sum which can be lent against strong conditionality. and we are now seeing this concept being further developed before countries get into difficulty via the new idea of “ reform contracts ”. countries can decide to undertake difficult structural reforms and receive financial incentives in return. this benefits both parties to the contract by preserving the national character of the decision, while protecting the wider euro area by reducing longterm risks emanating from misguided economic policies. however, a binding contract between member states is only needed where national preferences still play a strong role. 7 for instance, it is necessary to work through reform contracts because countries have different approaches when it comes to labour relations or unemployment benefits, based on their own histories and cultures. but where national preferences play a weaker role, it makes sense to shift policies straight to the european level. then we do not need to set rules and create incentives, because decisions are out of the hands of national authorities. this is the vertical dimension of the social contract in see ch. tiebout, 1956, “ a pure theory of local expenditures ”. journal of political economy, 64 : 416 – 424. bis central bankers ’ speeches europe that i mentioned earlier – directly between the european level and the ordinary citizen. examples of this direct relationship include the regulatory roles of the eu : protecting people from the negative effects of monopolies, regulating against harmful products, and negotiating suitable trade agreements. the eu also plays a role in redistributing resources from richer to poorer regions through the cohesion funds, although these amount to only 0. 36 % of the union ’ s gdp. where the social contract between the european union and its citizens needs to be reformed is in three areas. first, as i already noted, where there is a role for national preferences, there is still a role for

benoit cœure : taking stock of the global role of the renminbi speech by mr benoit cœure, member of the executive board of the european central bank, at the european - chinese banking day, frankfurt am main, 17 november 2014. * * * dear ladies and gentlemen, it is an honour to be invited here to the european - chinese banking day, part of the frankfurt euro finance week, and i would like to thank my hosts for giving me the opportunity to share some thoughts on the issue of yuan ( or rmb ) clearing. clearly, the increasing importance of the chinese economy and its currency over the last decades brings many new challenges, some of which also encompass international payment activities. as a major economy, the euro area is naturally affected by this process. the rise of china has been astonishing. since 1990, its weight in global gdp has increased from just below 2 % to over 13 % this year, and is projected to surpass 15 % before 2020. in ppp terms, china ’ s share in the global gdp is, as of this year, even larger than that of the us 1. this rapid economic development would not have been possible without china also becoming one of the world ’ s main trading nations, together with the euro area and the us. this economic prowess is also gradually translating itself into a greater presence in the financial sphere. china has liberalised cross - border financial transactions, first those related to trade and direct investment, but increasingly also those related to portfolio investment. approved investments under the different schemes that allow domestic and foreign institutional investors to make cross - border investments in and out of china have been rising steadily, although, so far, they amount only to about 2 % of china ’ s gdp. however, we should not forget that financial liberalisation is an ongoing process, which is still not complete. additionally, in the last few years, central banks across the world have started to hold onshore chinese renminbi ( cny ) in their reserves portfolios, usually with the expectation that cny may become a reserve currency in the coming years. many others indicate interest in reserve asset diversification into cny once china ’ s onshore market opens up further. this is an issue that the eurosystem will also have to further reflect on in the future. also, the shanghai – hong kong stock connect programme, which allows institutional and private investors from mainland china to invest up to a certain quota in hong kong and vice versa, is