treaty itself, which requests that member states treat national economic policies “ as a matter of common concern ” and subject them to a multilateral procedure. naturally, this economic co - ordination can in no way undermine the independence of the ecb and the eurosystem. even more importantly, the euro area possesses institutional mechanisms which are conducive to an appropriate policy mix : the stability and growth pact includes, on the part of the member states, strict fiscal requirements. i will cite three economic justifications for the treaty provisions that gave rise to the stability and growth pact : – first, by keeping a rein on the fiscal policies of the emu member states, the pact ensures a satisfactory policy mix within the euro area. this is essential for monetary policy, in order to counterbalance the fact that europe does not have a federal government and hence no significant “ federal ” budget. mutual surveillance and close co - ordination of fiscal policies are the responsibility of the " eurogroup " and of the ecofin council. keeping the deficit below 3 % of gdp, and achieving budgets that are " close to balance or in surplus " in the medium term, ensure a balanced policy mix throughout the euro area. – second, the pact helps to prevent well - managed economies from having to bear an unjustified risk premium on interest rates, resulting from the poor management of other emu economies, by setting up a penalty system for excessive deficits. – and lastly, the stability and growth pact disproves the assertion that the euro area has no automatic stabilisers in the event of asymmetric shocks to a member state. indeed, by urging governments to aim at a fiscal position " close to balance or in surplus " in the medium term, the pact enables them to allow budget deficits to increase during periods of specific national difficulties without exceeding the 3 % reference value. in short, it enables countries to create a fiscal buffer during periods of normal economic conditions. this buffer can be drawn on to counter economic divergences or asymmetric shocks during economic downturns. but of course, the extent to which governments can let automatic stabilisers play strictly depends on the initial level of the fiscal balance ; obviously countries which still have fiscal deficits have less room than countries with budgets close to balance or in surplus. ii. the euro itself is a catalyst for further progress while many acknowledge that the introduction of the euro on 1 january 1999 was broadly successful, one may ask, at this juncture

christian noyer : possible ways of improving the process of rating speech by mr christian noyer, governor of the bank of france, at the symposium on financial ratings, organised by the cercle france - ameriques, paris, 12 december 2007. * * * ladies and gentlemen, it is a great pleasure and honour for me to speak at this conference organised by the cercle france - ameriques and close the rich and lively round table discussions and the previous speeches on rating agencies and the financial crisis. in the current state of turmoil, rating agencies have attracted a large amount of criticism. my intention is not to enter into this discussion, but rather to make a few remarks on the rating process itself and the possible ways of improving it, in the light of the recent events. preliminary remarks an essential function of financial markets is to collect and process information. this information is used to assess the risk and return on the various assets, and therefore to help price discovery and more generally to take investment and financing decisions. however, the process by which this information is factored into prices is complex. economic agents do not all have the same access to data and processing capacities. there is therefore an asymmetry of information on the markets, which is at the root of well known market failures : adverse selection ( whereby lower quality investments are more readily financed than “ good ” projects ) and moral hazard ( which encourages investors to take excessive risks ). but more importantly, gathering and processing this information is costly. there is no incentive for the various investors to incur these costs if they believe that others will do it and thus ensure the efficiency of the market. when banks are engaged in financial intermediation, they gather and process the information concerning their borrowers through their customer relations. bank intermediation is therefore a means of overcoming the problems of the asymmetry of information and its accessibility. however, on a securitised market, where borrowers are directly in contact with lenders, this solution does not exist. the rating system is an answer to the problem, as it enables all players to have access to simple, clear and concise information on the credit risk attached to the various classes and categories of financial instruments. the rating activity has expanded in parallel with that of bond markets. all major issuers are now rated by one or more rating agencies. for them it is a sine qua non condition for widening their investor base. the rating system goes hand in hand with the development