within its mandate challenges in the economic and financial situation, so as to contribute to the stability of the euro area economy as a whole. but also the cohesion and resolve of the european leaders was crucial in this period. in june this year, european leaders decided to accelerate the move towards a “ financial union ”, by creating a single bank supervisor centred around the ecb and by linking to it the possibility that european banks, in due time and under certain conditions, could receive direct capital support from the european stability mechanism ( esm ). together with the announcement on the omt, this led to the much more benign market conditions that have prevailed in the recent months. bis central bankers ’ speeches therefore, i can address you today against the background of a relative return of confidence in the prospects for the euro area. the return of confidence is justified, but it relies on three things : first, given that the return of confidence was related in part to the announcement of outright market transactions, i would like to assure financial markets that we stand ready to implement this programme as and when required. second, euro area governments need to continue to pursue structural reforms at the national level. this is essential to regain competitiveness where it has been lost, and to lay the foundations for sustainable and balanced growth in the future. third, at the european level, leaders need to follow up with determination on their commitment to make the institutional reforms needed to complete economic and monetary union. that is what will fully restore stability to our continent. the message conveyed in june by presidents van rompuy, barroso, juncker and myself is that to succeed, institutional reforms must extend to the financial system, to the fiscal and economic policy framework and to the area of democratic legitimacy and accountability. these building blocks form a consistent and interconnected whole. they can be addressed within different time frames and following a logical sequential order, so long as the commitment to address all four of them is unwavering. in my remarks today, i would particularly like to elaborate on the rationale and principles for establishing a single supervisory mechanism. it is important to understand exactly why we need such a mechanism to determine how it would be designed. on the ideal schedule for establishing the single supervisor, i agree with those who say that we need to do it in a timely fashion but above all, we need to do it well. what is essential is to have the legal basis as soon as possible, ideally on 1 january 2013, so that preparations can begin

the situation of individual banks in a systemic context. as to the specific institutional arrangements, several alternatives have been proposed. the solution chosen by european leaders – to build the system around the ecb – is the only pragmatic one in the present circumstances. fourteen out of seventeen national central bank governors in the eurosystem already have a supervisory role. therefore, working jointly with the national supervisory authorities, the ecb will have the legal authority and technical capability to carry out this complex task successfully. as part of the european system of financial supervision, the single supervisor will closely cooperate with national authorities and with the existing european authorities, notably the european banking authority ( eba ). moving supervisory powers to the european level should not and will not change their respective roles and tasks. but some observers have suggested that the presence in the same institution of monetary policy and supervisory decisions can lead to excessive burdens, a potential confusion of roles and / or distorted incentives. these concerns must be taken seriously. to guard against them materialising, certain principles must be fulfilled. let me elaborate, based on reflections that are being conducted within the ecb ’ s governing council. rigorous separation of monetary and supervisory policies the first principle is the need for rigorous separation of monetary and supervisory policies. let me emphasise that we are taking this issue very seriously and we have envisaged ways to address it. the ecb has the advantage of having a very clear goal of price stability, expressed in a transparent and measurable way. this objective has never been compromised in the 14 years of the euro so far and it will not be compromised in the future. the ecb ’ s attachment to the primary objective of price stability remains unquestioned. the proposal of the european commission provides for the establishment of a separate supervisory board within the ecb, which will include representatives from national authorities. this proposal allows for a pooling of supervisory expertise and knowledge, and will help to ensure that decision - making lines on monetary and supervisory policy are clearly separated. to separate day - to - day activities, the governing council will define internal procedures, making a clear distinction between the monetary and supervisory functions within the organisation. we can build on a wealth of experience in this field, looking at best practices bis central bankers ’ speeches from the many central banks in europe and around the world that combine supervisory and monetary policy functions. independence and higher standards of accountability the second principle is the need to safeguard the ecb ’ s independence, implying higher standards of accountability