connection with the banking union. here, too, some quarters are evidently seeking a far - reaching joint solution, but without imposing stricter rules on the other policy areas that are also affected. a genuine european banking supervision can indeed form a major component of closer integration within monetary union. however, such an institutional reorganisation of banking supervision also has to be integrated – into a comprehensive reform of the supervisory regulatory framework and of the respective national scope for economic and fiscal policy. otherwise, too great a burden will be placed on banking supervision. what is crucial for political union is the willingness to hand over national sovereignty. does such a willingness actually exist within the eu? schlesinger : this question always takes me back to the start of european unification. at that time, the main objective was quite a different one – namely, to ensure that there would never again be a war in europe. the plan for a common european army was ultimately blocked by france, even though the loss of sovereignty involved would have been easy to implement. it is actually hard to envisage how a loss of monetary sovereignty could be achieved in the absence of a unified state. weidmann : seeing how reluctant some countries are to relinquish their fiscal policy autonomy – even in return for financial assistance – it is hard to imagine political union being achieved in the foreseeable future. mr schlesinger, should the bundesbank have fought more strongly against monetary union without a political counterweight in the 1990s? schlesinger : all of our demands were fulfilled. but i think we all underestimated just how wide the gulf is in the mindset not only of the political class but also in terms of public opinion in the individual countries concerning the objectives of fiscal policy. i would like to refer you to a chapter by rudolf richter in the publication marking the 50th anniversary of the deutsche mark ( note : fifty years of the deutsche mark : central bank and the currency in germany since 1948 ). he writes that the culture of stability in germany has been able to develop only because it has had the full backing of the general public. if you look at the bis central bankers ’ speeches maastricht treaty, the relevant criteria are there. but you won ’ t find any reference to the member states having to have the same culture of stability. weidmann : political efforts to use the central bank for policy purposes exist in all countries. however, the public ’ s stance on this is probably the crucial factor.

potential borrowers ’ risk and are unable to monitor the behaviour of their debtors perfectly, they tend to refuse to grant credit, especially in a situation of economic uncertainty. furthermore, the problem of ‘ asymmetric information ’ cannot be solved by the provision of collateral. if there is a fall in asset prices – say, with the bursting of speculative bubbles – the value of the collateral provided will undergo a dramatic fall. how relevant are such considerations to the present global economic situation? – 4 – a more in - depth view is probably needed here, too – in particular as it is difficult to identify a credit crunch in a clear - cut manner. it is not possible to identify whether a decline in lending is due to a restraint in supply or to slack demand. despite these problems in the diagnosis, there are some indications in japan of a credit crunch on the supply side. that is suggested, at all events, by the inadequate capital position of a number of japanese banks. even established corporations seem to be receiving scarcely any more loans. we do not have a problem of liquidity supply worldwide, however. what we do have is a confidence problem which is being manifested in a generally greater risk aversion. in the united states, credit terms have worsened since the summer, especially as a result of the turbulent developments in the equity markets. however, with its cuts in interest rates the federal reserve bank has – so far successfully – prevented a credit crunch. in the countries forming the future euro area, there has so far been no evidence of a credit crunch. there is no identifiable reduced lending, nor have the banks ’ capital bases been eroded by largescale losses. even the argument that continental european banks are at risk as a result of their relatively large exposure in the countries of central and eastern europe is putting things too simply. first, the banks have entered short - term exposures only on a minor scale. the major part of their lending has a medium - and longer - term maturity and is secured by federal guarantee. second, the off - balance - sheet positions which are not shown in the statistics are of particular importance for assessing the degree of risk to which the financial institutions are exposed. in that respect, i feel that european banks bear less of a burden. overall, the effects of the regional crises on the real economy are weaker, too, in europe, and the financial system is, on the whole, more stable. that is probably due to the difference in financing arrangements. in the