insurance fund financed by all the banks. the us treasury provided recapitalisation support and guarantees through its troubled asset relief program ( tarp ). the federal reserve undertook a thorough stress - test, determining banks ’ additional capital needs. bis central bankers ’ speeches to understand the situation we are in in europe, it is useful to make a thought - experiment, and imagine that no such federal institutions exist in the us. imagine that the state of california would have had to come up with the tarp money for wells fargo instead of the us treasury. imagine that the state of new york would have had to provide the guarantees to citigroup. think about how the markets, how would the rating agencies have treated these states? and how they would have treated these banks? the lesson for the euro area is clear : federal institutions can prevent local crises from becoming systemic. in europe, we do not yet have these federal institutions that can act as shock absorbers. so far, responsibility for dealing with bank problems lies exclusively with the individual eu countries. the result is that – to quote an ft editorial – “ national taxpayers subsidise banks implicitly in good times, explicitly in bad times, and suicidally in a sovereign debt crisis ”. indeed, the crisis in ireland has shown that problems in domestic banks can overwhelm the fiscal capacity of national sovereigns. the causality can also be the other way around, as the case of greece has shown, where fiscal problems have dragged down the banking system. these countries got caught in a vicious fiscal - financial feedback loop, which in the end also drags down the economy, breaks up the internal market, and impairs our monetary policy conduct. removing this vicious feedback loop is what banking union is all about. creating a banking union will be good for the euro, good for the internal market, and good for the recovery. it will be good for the euro, because it will help to repair our monetary policy transmission mechanism. in other words, it will ensure that the ecb ’ s low interest rates will be effectively passed on to those countries that probably need them most. it will be good for the internal market, because it will be of help to reverse the significant financial fragmentation that we have seen so far. and it will be good for the recovery, as banks will be put on a stronger footing, confidence will be improved, and ultimately credit will start to flow again to enterprises on affordable terms. but what are the necessary elements

also on the basis of low interest rates all along the money market yield curve, providing attractive financing conditions, the economy is expanding and we see a positive growth outlook. i will also outline which policies – in my view – are needed for the recovery to be sustainable with the prospect of long term growth. first, structural reform policies to strengthen overall growth prospects. second, a financial market sector reform ( which is well on track ), third, fiscal consolidation ( which is also well on track ) and fourth, the continuous concentration of monetary policy to be directed at medium term price stability as this is the necessary and crucial contribution of monetary policy to fostering sustainable economic growth, job creation and financial stability. price stability and financial stability are indispensable elements shaping the outlook for global growth. a third element is sound public finances. but before addressing these issues, let me give you some ideas on what the ecb has done during the crisis. the ecb ’ s actions during the crisis recent years have been most challenging across the globe. what started as tensions in the money market in august 2007 quickly spread around the globe, leading to severe repercussions across economies and markets. after the failure of lehman brothers in september 2008, we saw a sharp fall in global activity. in the fourth quarter of 2008 and the first quarter of 2009, global trade volumes fell by 18 percent. this development was also felt here in china, where year - on - year gdp growth decelerated to 6. 2 % in the first quarter of 2009 from 9. 1 % in the third quarter of 2008 and trade values decreased by 33 % from september 2008 to march 2009. in the euro area, real gdp fell by altogether almost 4. 5 percent and unemployment rose by 1. 4 percentage points in just six months. at the same time, extra - euro area export volumes of goods decreased by 18. 0 % and import volumes by 12. 8 %. the ecb acted quickly and decisively in response to the crisis. we reduced our key interest rates to unprecedented low levels. the interest rate at the main refinancing operations was lowered by 325 basis points to 1. 0 % between october 2008 and may 2009, i. e. within a period of only seven months. and, we have left it unchanged since then. in addition, we introduced a series of non - standard measures to support credit provision by banks to the euro area economy. our non - standard measures were designed to sustain financing conditions