##udential factors play an important role in determining the size, nature, and propagation of systemic risk. therefore, it is essential to establish an effective framework for macro - prudential supervision that will ensure a systematic analysis of risks, as well as the formulation of policies to address such risks. let me say a few words about the framework for macro - prudential supervision envisaged for the e. u. following the publication of the report of the de larosiere group in february 2009, the commission issued a package of draft legislation in late september with the aim of creating a european systemic risk board – or esrb. the main task of the esrb will be to identify and assess risks to the stability of the eu financial system and issue risk warnings when the identified risks appear significant. several features of the proposed framework are important. • first, the european system of central banks will play a key role in the functioning of the esrb. the voting members of the esrb ’ s general board will include the 27 governors of the eu ’ s national central banks and the president and vice president of the ecb. • second, the ecb will be assigned the task of ensuring sufficient human and financial resources for the esrb ’ s secretariat. • third, the esrb will not be responsible for the implementation of macro - prudential policies. that responsibility will remain with national authorities and national supervisors. • fourth, since the esrb will not implement macro - prudential policies, the effective monitoring of the follow - up to its warnings and recommendations and the consistent and timely implementation of the recommendations will be crucial for the performance and the credibility of the new macro - prudential supervisory framework. the creation of the esrb will, in my view, constitute a historic step forward, putting in place an important building bloc of an eu financial - stability framework that is consistent with the objectives of creating a single market. challenges for southeastern europe some of the policy challenges facing the euro area also need to be addressed by the countries in southeastern europe. moreover, many of the countries in southeastern europe are confronted by additional challenges. let me mention some of these challenges, as well as some questions that we may wish to consider during the course of this conference. • first, prior to the crisis many countries in the region ran large current - account deficits underpinned by capital inflows. as the crisis demonstrated, however, capital flows can be subject to abrupt and sharp reversals. what

balance sheets. among the factors that will shape the ecb ’ s approach to exiting the nonstandard measures are the following : • first, we will act with the aim of securing price stability in the medium - term. by implication, any non - standard measure that may pose a threat to price stability will be promptly withdrawn. if no such risk exists, a measure can be maintained in case of significant financial - market tensions. • second, we have built a degree of phasing out into the exit process through the design of our measures. in the absence of new policy decisions, several of these measures will unwind naturally, for example, through pre - determined termination dates. • third, the ecb ’ s operational framework comprises a broad set of instruments so that the exit strategy can be formulated in a flexible way. for example, the interestrate corridor allows short - term interest rates to be changed while keeping some nonstandard measures in place should the need arise. therefore, the governing council can choose the way in which interest - rate action is combined with the unwinding of the non - standard measures. let me turn to the issue of the exit from expansionary fiscal policies. in my view, an important medium - term risk to sustained recovery revolves around deteriorating fiscal positions. the large increases in fiscal deficits and public debt incurred to provide stimulus to the economy have already raised concerns in financial markets, as suggested by the widening sovereign spreads relative to pre - crisis levels, for economies with large fiscal burdens. if the recovery were to stall, followed by a prolonged period of very - low growth, deficits and debt could swell to difficult - to - sustain levels. governments will, therefore, need to start addressing mounting long - run fiscal challenges by committing to large reductions in deficits once the recovery is on a solid footing and advancing reforms that will put public finances on a more sustainable path. i need to add that greece is among the euro - area countries for which the challenge of medium - term fiscal viability is especially urgent. financial sector regulation the best way to manage a crisis is to prevent it happening. at the root of the market failure that led to the crisis was optimism bred by a long period of high growth, low real interest rates, and policy failures. one such failure was that financial regulation was not equipped to address the risk concentrations and distorted incentives underlying the financial innovations. this circumstance raises another medium - run challenge. the present crisis has revealed that macro - pr