would not say anything else. this is the governing council ’ s position. p. m. since france voted “ no ” to the referendum on the constitutional treaty, europe seems to be totally paralysed. does that worry you? j. - c. t. europe has experienced and is experiencing a complex historical episode in a rapidly changing world. i remain very optimistic. i believe that the progress of europe, which is a colossal historical undertaking, has temporarily hit a difficult patch that probably in itself results from its truly phenomenal success. who could have predicted the fall of the soviet union, and that the whole of communist central and eastern europe would join western europe very quickly? i think that in europe we are in a maturing phase. as far as we are concerned, europe has not come to a standstill. rather, it is very dynamic. we work with the twelve countries of the euro area, and the other eight countries whose currencies are directly pegged to the euro by means of the european exchange rate mechanism. in order to prepare well for the success of the european union and enlargement, 27 nations are working together in the european system of central banks, including romania and bulgaria as observers. we are proud that we have given europe a credible currency and a historically unparalleled financial environment with medium and long - term interest rates at levels that hundreds of millions of europeans could only have dreamed of prior to the euro. p. m. you still have six years left of your mandate as president with a very hectic life. don't you sometimes wish that you could go fishing in your beloved city of saint - malo? j. - c. t. along with my colleagues on the executive board, the governing council, the entire ecb staff and the eurosystem, i am very privileged to take part in such an immense historical endeavour that is of great benefit to europe. it is inspiring. this justifies all of the hard work that we do. that said, i love going to saint - malo. for me, the rance estuary is one of the most beautiful places on earth.

which clearly facilitated the cross - and off - border expansion of the icelandic banks through the so - called european passport. it was and is deeply flawed. the basic problem is that the freedoms are not matched by public action and frameworks at the eu and eea level. bank size relative to country size was assumed to be a matter of no concern, and fx risk was largely ignored. based on the icelandic experience, a banking union makes perfect sense, but only fully for the eurozone, and even then it has to include all three elements – common supervision, resolution, and deposit insurance – in order to break the deadly embrace of banks and sovereigns. in the interim, i think small countries, especially those with their own currencies, will have to impose their own prudential measures in order to defend themselves against the risks they face. the third lesson relates to the structure of the financial sector in small, open economies in the absence of robust and credible international or regional safety nets. to my mind, international financial centres cannot be located in such countries without some ex ante mechanism that at least partly insulates the domestic economy from the risks involved. in some sense, this is what iceland did in the nick of time in early october 2008. furthermore, in very small, open economies with their own currency, like iceland, the international activities of domestic banks and fx risks on their balance sheets must be limited and regulated. in this context, we have been thinking about the prudential regime that must be in place in iceland when we have lifted capital controls and icelandic banks are again free to use their european passporting rights. we will have more stringent restrictions on permissible currency mismatches than in the past, also taking into account positions of unhedged households and companies, but more importantly, we will, through some combination of lcr - and nsfr - type ratios in foreign exchange, put strict limits on fx maturity mismatches. the combination of these and other measures will make it impossible for the banking system to attain the size and cross - border reach it had before the crisis. the big question is whether it will be deemed compatible with the eea agreement. bis central bankers ’ speeches more generally, i think the distinction between macroprudential measures and capital controls can be more complex than many make it out to be. the fourth lesson is on capital flows : deal with the inflows if you want to avoid the risk of having to introduce comprehensive capital controls