 So dear colleagues, we move on with our program. That's my time to have my say on the subjects of our conference. And as you know, it will be my last conference about the financial integration report that we prepare, and which I have more or less supervised, let's say, throughout many years. Departures always entails some problems, but at least they have a silver lining, which is that one starts to feel more and more free. And in my case, particularly because my successor is already appointed, so I feel more and more detached, which means that I can be more ambitious in what I say. Let's put it that way. So today I would like to reflect on the relevance of financial integration to economic and monetary union and provide some suggestions for future directions. So already at the very early stages of the project, it was clear that financial integration was needed to make the monetary union sustainable. The 1970 Werner Report mentioned the complete liberalization of capital transactions and the full integration of financial markets as one of the three necessary conditions for a monetary union. Along with this, it was understood that the single currency would secure the full benefits of a single market for capital. During the run-up to the Maastricht Treaty and in the context of the DeLore Report discussions, it became clear that the dictum one market, one money, also implied addressing possible new concerns about financial stability in economic and monetary union. In some cases, these translated into precision calls, like that from Alexander Lamfalusi, for assigning the European Central Bank a role in banking supervision. Eventually, however, the institutional setup of monetary union left financial stability considerations largely unaddressed. This approach clearly showed its limits during the financial crisis. The financial fragmentation of EMU during the financial crisis was partly a result of the initial choices concerning EMU's institutional architecture. To be precise, its minimalist design, which left economic and financial policies mostly at national level. This was maybe due to an overriding faith in the efficiency of financial markets that even though not chaired by all EMU founding fathers, prevailed in Maastricht. It has to be acknowledged, however, that over the following years, financial market integration in EMU and at a global level, accelerated at the speed that was hard to grasp in those early days after the creation of monetary union. The introduction of the single currency gave a major impetus to financial integration in the euro area. Financial integration was impressive in terms of quantitative indicators, but it was also not sustainable. It proved to be shallow and reversible. In fact, it even contributed to the rapid contagion in the early days of the crisis. We learned the hard way that the single currency requires a financial system that is sustainably integrated and indeed as single as possible. Much has been done to correct the initial design failures of EMU. Along with the introduction of the euro, the EU Financial Service Action Plan was launched to provide an overall framework for the integration of financial services in Europe. With the surge of the financial crisis, it also became very clear that macro-prudential policy needed to complement both monetary policy and micro-prudential supervision. The European Systemic Risk Board and the European Supervisory Authorities were then established at the beginning of this decade. However, these reforms quickly proved to be insufficient to keep pace with adverse financial sector developments, especially concerning the role of the banking sector in the monetary union. So in response, the banking union project was launched, but convergence in regulatory and supervisory standards is not enough to spur the development and integration of capital markets that is needed for growth and private risk sharing. Therefore, efforts in this direction were also undertaken with the launch of the Capital Markets Union Initiative. In short, the history of EMU is marked by an evolving search for the right institutional embedding of financial markets. And in that search, Europe has to be agile to react to changing circumstances. In doing so, it has to find a balance between markets and regulation, between liability and control, and between the European and national levels. However, the crucial question is whether we will achieve a sustainable financial integration that is commensurate with a single currency. The fragmentation that occurred has reversed along several dimensions in the last few years, but significant room for further improvements in financial integration remains, for example, in the integration of retail banking services and in the financing of the corporate sector. Financial integration provides risk-sharing mechanisms which can reduce the impact of country-specific shocks and contributes to macroeconomic stability, international diversified portfolios, cross-regional and cross-border asset holdings, including firm ownership, are more resilient to global and local shocks and can mitigate the impact of such adverse scenarios. For countries in the monetary union, this risk-sharing mechanism is particularly important because the single monetary policy is unable to address asymmetric shocks, since other important adjustment mechanisms, for example, related to fiscal policy and exchange rates are limited. Therefore, more private financial risk-sharing can significantly improve the macroeconomic stabilization of the euro area and thereby the functioning of EMU. However, bear in mind that in recessionary periods, the power of this private risk-sharing mechanism is significantly reduced, in particular via the powerful credit channel. And let me point out that this channel accounts for about one quarter in the United States of the income smoothing and around 12% in the euro area of the overall smoothing that is achieved in both jurisdictions in normal times. Perhaps even more important, financial integration is also essential to foster economic growth. Integrated capital markets provide a wider source of financing and lower funding costs for households and firms and ultimately support innovation and the efficient allocation of capital, a financial system which allocates resources efficiently and is resilient to shocks, ultimately supports the transmission of monetary policy and its effects on price stability. So the banking union and the CMU affect different parts of the financial system at different stages of development but follow similar objectives to achieve a more efficient and stable financial system. They are also complementary projects and work on them should run in parallel. So completing the banking union is the first task ahead and each of its three pillars, notably the single supervisory mechanism, the single resolution mechanism and the plan European deposit insurance scheme address the risks of fragmentation. They are also, they are all necessary to ensure a proper balance between markets and regulator and liability and control at European and national levels. However, the framework is still incomplete. Most notably, it requires, as it has been said also by Vice President Dombrovsky, a common public backstop to the single resolution fund, which is essential to inspire full confidence in the resolution regime. In addition, it would be desirable to eliminate national divergences in the insolvency and liquidation of credit institutions and in the implementation of the BNRD through national resolution laws. Allowing these divergences to persist ultimately implies that the geographical location of a failing bank may still influence the outcome of the resolution, which is inconsistent with the idea at the heart of the banking union. Finally, in order to complete the banking union, we need a single full-flagged eddies. And the eddies would strengthen depositors' confidence through an equal level of depositor protection across member states, and therefore, promote financial integration. Ultimately, a fully-flagged eddies would be strengthened by the pooling of resources thus building confidence in the single currency. The finalization of the banking union through the third pillar would require an adequately-sized fund built and financed by banks by raising exotic contributions accompanied by a public backstop as recommended by the ECB's opinion on eddies. The calibration of these contributions should help to minimize the risk of some banking systems subsidizing other banking systems in the event of a general crisis. Recently published ECB Occasional Paper simulating severe banking crisis, it demonstrates precisely that with proper bank risk-based contributions, an almost negligible cross-border subsidization occurs in the case of general banking crisis. For this reason, a crucial element of a full-flagged eddies would consist of risk-adjusted contributions to the fund based on bank-specific strength and weaknesses benchmarked at the banking union level. Progress is also needed in the framework for a macro-potential regulation. I regard these as a precondition for safeguarding financial stability in an integrated market and, therefore, protecting the single market. The CRR-CRD4, the ESRB, and the SSM regulations already define the key elements of the macro-potential framework, but as the framework is tested and more experience is gained, the rules will need to be steadily revised. Authorities with a mandate in this area must have well-defined roles and responsibilities, including a distinct set of instruments. Current overlaps between instruments should be eliminated, like pillar two for micro-potential reasons and macro-potential tools for macro-potential policy. And at the same time, more flexibility in the macro-potential policy framework should be maintained so that authorities can implement those measures in a consistent and timely manner, which would require significant changes to article 548 of the CRR. And if I may develop on this idea, indeed, the proposals that are now on the table about the review of CRD4 and CRR are in the view of the opinions that the ECB has formulated and the recommendations that ECB has done in this sphere are not really contemplated in the present projects that are being discussed. So I still hope that some of our recommendations can be taken up by the European Parliament and by the Council. A more integrated financial market will support the emergence of new types of risk and also require extending the toolkit with new instruments. For the banking sector, this includes complementing the toolkit with borrowed-based instruments, such as limit on loan-to-value or loan-to-income ratios, as well as sectoral buffers and a time-varying leverage ratio add-on so that all aspects of systemic risks can be addressed in general in the banking union. Finally, the mandatory reciprocity framework needs to be expanded so as to ensure the effective mitigation of cross-border spillovers and regulatory arbitrage across jurisdictions in the EU. The significant progress we have made with our banking union needs to be recognized also from the international regulatory framework perspective. A case in point is the GSIBs framework, which currently penalizes cross-border transactions with the banking union by attaching a higher systemic risk score to banks with more transactions within the euro area, because the euro area is not considered a single jurisdiction for this purpose. This goes against the very rationale of the banking union as it reduces the incentives for cross-border capital transactions and risk diversification, thus making banks more vulnerable to local shocks. At the same time, we also need to remove the remaining obstacles to further integration within our banking union. Such obstacles are often due to regulatory fragmentation and ring-fencing of national markets. For example, a number of national options and discresions, which Philip addressed in his presentation and are noted in the report, such as diverging large exposure rules or the question of waivers about capital treatment at centralized level in banking groups, hinders the free flow of liquidity and capital in the banking union and should be harmonized further. Turning to other parts of the financial system, we can expect that the CMU will provide further impetus to the growth of market-based finance and may present new challenges to financial stability. Additional steps should be taken to strengthen the ability of European regulators and supervisors to address systemic risks stemming from the non-banking part of the financial sector. This could be achieved by expanding the mandate of relevant authorities and in the medium run by creating a single supervisor for the capital markets. Adequate macro-prudential instruments need to be envisaged as well, including instruments targeted at market-based finance. Macro-prudential tools for this area either still need to be provided to authorities or need to be further clarified in respect of their applications. For securities financing transactions and derivative markets, macro-prudential margins and air cuts have been identified as potential powerful tools for reducing the excessive buildup of leverage and prosyclicality in these markets. For alternative investment funds, the existing macro-prudential leverage limit needs to be operationalized. The forthcoming review of the Alternative Investment Fund Managers Directive provides an opportunity to resolve any issues that may ender the future implementation of this leverage limit. The stability and integration of financial markets in the monetary union is also closely related to the creation of a Euro area safe asset in for a number of reasons. First, an European or Euro area-wide safe asset could help reduce the excessive on-buyers in banks' sovereign exposures, which exacerbates the feedback loop between banks and sovereigns. Reforms to the resolution regime, like BRID, have tackled the issue from one direction, meaning from banks to the sovereign. However, at present, there is no clear solution for tackling it in the other direction from the sovereign to the banks. The creation of a Euro area-wide safe asset composed of a pool of sovereign bonds would lead to a reduction in the on-buyers of banks' portfolios by facilitating de-risking and diversification. Second, a Euro area-safe asset would be crucial for the financial integration and the capital markets union. In fact, it is necessary for the creation of an integrated, deep and liquid European bond market as a central piece of CMU. A single term structure of risk-free interest rates could serve as a Euro area pricing benchmark for the valuation of bonds, equities, and other assets. The safe asset could also be used as collateral, for example, for repo and derivative transactions across the Euro area. In principle, several options are available for creating such a safe asset. Some options are not politically viable, while others may not be economically sound. I'm not referring to the type of Euro bonds that would replace national sovereign debt as a joint liability of member states as these would require a deep political union that does not exist. Various proposals have been put forward, but I will concentrate on just two. A variant of the European safe bond, ESBs, or sovereign bond back securities, SBBS, as proposed recently in a big report published by the SRB, and the e-bonds as proposed in the Monty report. The current proposal for SBBS refers to a tranched, synthetic bond backed by national sovereign bonds. The senior tranche would have very low risk levels, presumably below German debt, as a result of the diversification gains based on historical correlations and of the protection granted by the lower grade tranches. Market literature and rating agencies have been skeptical about the instrument. Their main concern is a perceived lack of sufficient diversification to ensure that the senior tranche can be, indeed, as safe as claimed, because correlations among several countries could increase in a stressful situation, as occurred during the financial crisis. Also, it may be difficult to sell the junior tranche at coupons that do not compromise, fatally, the overall economics of the synthetic security issuance. Indeed, if the junior tranche had to be placed at a relatively high coupon, then the senior tranche would need to offer a lower coupon than bonds, a doubtful selling prospect. This would likely render the economics of the SBBS invaluable, which would be very unfortunate. These obstacles could be overcome, if, for instance, a small first-last tranche were to be covered by public guarantees jointly provided by member states. Such contingent liability could be limited to a reasonable level. The success of the synthetic European bonds would have significant benefits for financial integration and for the banking and capital markets union. Alternatively, an European entity could issue e-bonds as a pure secretization of sizable amounts of national sovereign bonds without tranches, but with a preferred credit to status over national sovereign bonds. Such a structure would be less efficient and could increase the cost of issuing the non-preferential part of national debt that is not included in the securitization. However, this could even act as a disciplinary device and would not necessarily imply an increase in the cost of the total debt issuance. The amounts achieved could nevertheless be considerable. For instance, according to a recent working paper of the Patterson Institute, in order to have an expected five-year loss rate of 0.5% or lower, the European entity could securitize 50% of a country's debt or 25% of its GDP. An European safe asset is crucial for the CMU project, which in turn is important for economic growth. A big and liquid market, both of debt and equity, would spur innovation and enable the development of an efficient venture capital market. This relates to the importance of boosting the euro area's capacity to engage in activities conducive to innovation and productivity growth. In the years since the Great Recession, the pace of productivity growth in Europe has been persistently slow. In fact, European productivity had already started to stagnate during the mid-'90s. While some economists have argued that this is all part of a global secular decline in growth, driven by factors such as aging, population, and growth convergence across emerging markets, others believe that scientific progress will keep pushing the technological frontier forward. In any case, without trashing now among these two views, although I must say I'm closer to the first one, it is vital that we have financing mechanisms in place in Europe that can support science and technology's contribution to economic growth. One powerful way in which policy can assist this process is by stimulating the emergence of deep and integrated European capital markets. Capital markets, after all, play an important role in sharing economic risks and in smoothing consumption, but even more fundamentally, they contribute greatly to innovation and growth. Evidence increasingly suggests that while both banks and markets are important for the financing of economic growth, non-bank financial intermediation provides a relatively more powerful contribution to innovation and productivity enhancing activities in modern sophisticated economies. And the special feature in our report is totally dedicated to this issue, having a very good survey of literature and the evidence that supports this statement. While the European Commission's current CMU initiative is an important step in the right direction, a much more ambitious agenda for bolstering capital markets in Europe is needed in the future. Developing well-functioning capital markets which support growth requires a comprehensive approach. To that end, Europe needs to boost the supply of equity finance. Policies which stimulate individual ownership of trade shares, such as reducing the tax advantage of debt over equity or enhancing financial literacy and can have a material effect on public equity markets. At the same time, because stock markets open penalized companies which undertake radical but uncertain innovative activities, the contribution of private equity, particularly in the form of early stage venture capital finance, is indispensable as a critical mass of angel investors who can provide financing for a medium-sized project is also needed. Only with a deep liquid market is it possible to launch IPOs of successful projects that can offset the losses with projects that fail. Harmonizing insolvency rules across jurisdictions would be a major step towards supporting capital markets. This is critical for mobilizing finance through capital markets as it would create incentives and favorable conditions for institutional investors to overcome the own bias in their investment strategies. This is especially true for pension investments as large private pension funds tend to be a complement to deep capital markets. We need to establish an harmonized regulatory environment for new types of finance, such as crowdfunding. The emergence of increasing complex financial products need to be accompanied by adequate consumer protection or of financial investment in order to safeguard financial stability and ensure the protection of individual investors. The second component of a comprehensive approach entails policies that will stimulate entrepreneurship. ITEC entrepreneur firms that aspire to go public should be supported and facilitated by stock exchange specializing in IPOs for young innovative companies. A reduction in the wedge between corporate income taxes and personal income taxes has already been shown to have a strong positive effect on ITEC investment in an European context. Last but not least, the efficient application of R&D tax incentives and increased public funding of private research universities whose labs often make key scientific and technological breakthroughs are other important avenues for stimulating innovation and the commercialization of science. Let me conclude. So far, measures adopted in the context of the CMU initiative, albeit positive and helpful, are not yet commensurate with the ambition of the project. With CMU, we should aim to reach a situation where issuers and investors enjoy the same basic legal rights concerning capital markets activity regardless of the EU country where they are located. The CMU project involves all EU member states, but it is of particular importance for Euro area member countries. It is a big waste to have made the huge step to adopt a single currency and continue to forgo the benefits that could be reaped by creating a true banking and capital markets union. I believe that Euro area countries should forge ahead in enhanced cooperation in order to more rapidly achieve CMU. We should, however, be well aware that CMU requires an European safe asset, harmonization of taxes on financial products, conversions of company law, including on bankruptcy, creation of a single rulebook of regulation for markets activity, and ultimately, an European single securities market supervisor. The other big condition is a rock solid monetary union to so that asset risks and returns are not significantly influenced by pure re-denomination risks but exclusively by their idiosyncratic features. Have it all, I know. But I will believe that the CMU project is possible when I see authorities start making inroads in some of those difficult issues. Thank you very much.