True sovereignty is reflected not in the power of making laws – as a legal definition would have it – but in the ability to control outcomes and respond to the fundamental needs of the people: what John Locke defines as their “peace, safety, and public good”. [3] The ability to make independent decisions does not guarantee countries such control. In other words, independence does not guarantee sovereignty. Countries that are completely shut off from the global economy, to take an extreme but instructive example, are independent but not sovereign in any meaningful sense – often relying on external food aid to feed their people. Yet being connected through globalisation also 1 / 10  BIS central bankers' speeches  increases the vulnerability of individual countries in many ways. They are more exposed to financial spillovers and to the aggressive trade policies of foreign states, while increased competition makes it harder for states to coordinate with one another to enforce regulations and set standards so as to achieve their social goals. This restricts their control over domestic economic conditions. In this environment, countries need to work together to exercise sovereignty. And this applies even more within the EU. Cooperation within Europe helps protect states from external pressures, and it helps enable their policy choices. Working together to protect Globalisation has profoundly changed the nature of global production and deepened the ties that exist between countries. Cross-border holdings of financial assets are now around 200% of global GDP, compared with about 70% in 1995.
Amund Holmsen: The theoretical background for macroprudential policy Speech by Mr Amund Holmsen, Executive Director of Norges Bank (Central Bank of Norway), at Norges Bank’s Finance Workshop, Oslo, 9 October 2014. *  *  *  Thanks to Henrik Borchgrevink. This speech does not contain any assessments of the current economic situation or policy-related statements. Songs about financial stability are few and far between. But Odd Nordstoga has written a song about just that, entitled Lykkeliten (Happy Times) 1: “Happiness is a time without debt, and reading the end of a book when in bed”. That financial stability can be so directly associated with a feeling of happiness is an encouraging point of departure for macroprudential policy. Nordstoga has actually turned economic theory upside down. Happiness – or utility as we economists tend to call it – is usually associated with consumption. We can borrow to finance consumption. Credit provides an opportunity to advance consumption in time. In that respect, more credit engenders more happiness – not the opposite. But after the goods have been consumed, the loan still exists. Debt creates risk in the financial system. Nordstoga may then prove to be right. A time without debt may be a happier one. The business of banking is such that it can trigger or amplify an economic downturn. Subsequent to the financial crisis, macroprudential policy has evolved into a supplement to both traditional banking regulation and stabilisation policy.