their owners. 4. sovereign risk i now come to my second proposition. we have to consider sovereign risk as the main overarching risk in germany and europe as a whole − all the more so, since there is a strong link between sovereign risk and asset quality and the funding risk of the banking systems concerned. three weeks ago, the european council agreed an important and comprehensive package of measures to tackle the current european debt crisis and obviate future strains. the package includes several elements. the most prominent of these measures is the launch of a permanent financial stability mechanism which will replace the temporary mechanism initiated last year. the permanent mechanism, known as the european stability mechanism, has major features that safeguard effectiveness and prudence. the esm will have a lending capacity of €500 billion. activating the financial assistance mechanism requires a unanimous vote by all participating member states. the granting of any financial assistance will be made subject to strict conditionality. a rigorous analysis of public debt sustainability will be conducted. when debt is considered to be unsustainable the private sector will be involved in restoring the public debt to a sustainable path. it is important to realize that these facilities are bracing europe even for the eventuality of further turmoil. at all events, protecting portugal is not overstretching the available resources. in addition, the euro - area heads of government agreed a so - called euro - plus pact. under the terms of this pact the countries concerned are committed to announce and implement a set of actions to improve their competitiveness. in particular, the countries should link the age of retirement to demographic change and the development of labor costs to the corresponding gains in productivity. furthermore, a reform of the stability and growth pact aims to enhance the surveillance of fiscal policies. for observers outside europe this variety of decisions and instruments may appear puzzling or, at least, complex and complicated. but that simply reflects the unique structure of the european union, which is striving for comprehensive economic and monetary integration without transforming the political system into some kind of a united states of europe. in fact, the determined and comprehensive decisions taken by the european council confirm the union ’ s capacity to act. at the same time, they demonstrate the firm conviction that the euro is contributing to our welfare and competitiveness and remains our common currency. to put it in a nutshell : europe has strengthened the governance of the monetary union and has launched a permanent support facility without transforming the character of the euro area : bis central bankers ’ speeches

andreas dombret : financial stability – challenges from a european perspective luncheon speech by dr andreas dombret, member of the executive board of the deutsche bundesbank, at the american council on germany in new york, new york, 13 april 2011. * 1. * * welcome address ladies and gentlemen leaving frankfurt heading south on the autobahn, on the right - hand side you suddenly come upon two old planes framing a rampant arch. neither of the two planes is a beauty. nevertheless, the monument is a major attraction. the aircrafts are a douglas c - 47 and a douglas c - 55, which were two of the airplanes deployed by the united states air force during the famous airlift of 1948 to 1949. the arch in the middle of the triptych symbolises that airlift. to this day, germany remembers that crucial moment in time. a living friendship needs the sound foundation of common values and it also needs institutions that cultivate an intellectual and cultural exchange. the american council on germany plays an important role in bringing together leaders from both our countries. i was therefore honored to receive an invitation from you, the american council on germany, to speak to you today. 2. introduction let me start by stating four propositions. with reference to the title of my speech, these propositions should constitute a current european perspective on financial stability. it goes without saying that they are far from being exclusively european. my first proposition is that we have been living with the crisis for four years now. it is too early to announce the advent of a post - crisis economy or a post - crisis financial system. my second proposition is that sovereign risk should be considered the main overarching risk to financial stability in germany and in europe as a whole. nevertheless, my third proposition is that the risk outlook for the german banking system has been improving. my fourth and final proposition is that financial stability constitutes a long - term strategy for forestalling the build - up of cyclical and structural excesses in financial markets. even when acute threats to financial stability may warrant extraordinary measures, policymakers have to keep in mind the longer - term costs of prolonged ad hoc measures if they distort incentives and undermine market discipline. 3. in the fourth year of the crisis let me expand on my first proposition. we have not left the crisis behind us, although the nature of the crisis has obviously changed over the past four years. the crisis that erupted in 2007 had its origins in a set of problems that