While the ECB and the national central banks of the European Union will be heavily involved in the ESRB framework, it is essential to make a clear separation between macro-prudential oversight and monetary policy. The primary objective of euro area monetary policy will remain the maintenance of price stability. Financial stability lays the conditions for the central bank to pursue its task of maintaining stable prices. It is also the outcome of an environment of steady macroeconomic prospects and confidence, which only stable prices can ensure. Current challenges for European integration Ladies and gentlemen, although the financial crisis did not originate here, it has profoundly challenged the European economy – and it is continuing to do so. Economic and Monetary Union – in short: EMU – is a union based on two foundations: economic and monetary. These are two foundations that reinforce one another. Responsibility for the “M” is centralised and assigned to the Eurosystem with the ECB at its core, aiming to ensure price stability in the euro area over the medium term. We have defined price stability as an average annual inflation rate below but close to 2% over the medium term. How have we performed against this objective since the introduction of the euro? Based on current staff projections for this year, by the end of 2010, the average inflation rate in the euro area since the introduction of the euro is estimated to be around 1.95%.
The highly fragmented banking system and relatively weak risk management systems within the domestic financial institutions which prevailed in Malaysia prior to the financial restructuring and reforms that were undertaken from 2001 would have rendered the implementation of Basel II extremely difficult, if not impossible to achieve without risking disruptions to the intermediation process. The financial reforms that were undertaken to strengthen the underpinnings of our banking system are therefore instrumental in facilitating the smooth transition to the adoption of Basel II in Malaysia without adverse market outcomes. In the more recent period, the Asian region as a whole has made significant strides towards strengthening market structures and institutional arrangements for financial stability. Two developments deserve mention, in view of their important contributions towards mitigating some of the concerns surrounding Basel II for emerging economies. First, in the decade following the Asian crisis, the emerging economies in Asia have extensively developed their bond and equity markets. Measured in terms of market capitalisation, East Asia's equity markets have more than trebled since 1997. The bond markets in the East Asian region have also seen significant growth during this period with significantly improved liquidity conditions in these markets. There is therefore now a more diversified structure in the financial system. Second, within Asia, the regional cooperative framework has been substantially strengthened to support financial sector development, surveillance, crisis management and capacity building.