FRANKFURT (MNI) – The following is the second part of verbatim text
of the introductory statement by European Central Bank President Mario
Draghi before the Committee on Economic and Monetary Affairs of the
European Parliament in Brussels on Tuesday:

3. Financial market union

Let me now turn to the other topic you have chosen for todays
exchange of views, namely the financial market union.

The ECB welcomes the European Commissions proposal for a Single
Supervisory Mechanism, which is very much in line with the statement of
the euro area summit of 29 June 2012. We are looking forward to working
closely with the European Parliament in this field. I am confident that
the excellent cooperation we have established so far will continue with
matters of financial supervision.

Let me here focus on three issues that are key to setting the stage
for the new supervisory framework in the euro area: first, the principle
of separation between monetary policy and financial supervision; second,
the possible participation of non-euro area Member States in the SSM;
and third, the accountability framework.

On the first issue of the separation of monetary and supervisory
functions, we are not entering uncharted territory. Many central banks
around the world including a large majority of the national central
banks in the Eurosystem combine monetary and supervisory functions.

Proper arrangements to prevent monetary policy being
inappropriately affected by the supervisory role have been devised in
several countries. I am confident that we can establish suitable
arrangements in the euro area, drawing in part on their experiences.

The Commissions proposal provides a solid basis for achieving that
goal. By having the Supervisory Board carry out all regular supervisory
activities performed directly by the ECB, we will go a long way towards
avoiding possible conflicts of interest between the two functions. In
addition, we are examining internal procedures that would separate the
relevant work-streams supporting the two functions.

The second key issue for the supervisory framework is the
possibility of non-euro area Member States participating in the SSM. Let
us first take a step back and remind ourselves that the key reason why
we are building the financial market union is because of what is
happening in the euro area. We are building it to break the vicious
circle between sovereigns and banks, the manifestations of which are
much more acute and disruptive in a monetary union. That is why we need
the SSM in the single currency area.

At the same time, it is clear that we have to create the financial
market union while sustaining and even strengthening the single
market. Both the single currency and the single market are key pillars
of growth and prosperity in Europe. Both should be maintained indeed,
both should be enhanced.

The ECB welcomes the possibility of involvement of non-euro area
Member States in the SSM. The participation of additional Member States
would provide an even stronger boost to the completion of the single
market.

That being said, for an entity such as the ECB, whose key legal
powers and key decision-making fora are limited to the euro area,
imposing obligations on and granting corresponding rights to
non-euro area Member States raises a number of legal issues. Our legal
services together with those of the Commission and the European
Council are examining closely the possible modalities of participation
of non-euro area Member States within the legal constraints of our
Statute.

The third key issue for the supervisory framework is one that I
suspect is particularly close to your hearts: how the ECB will be
accountable for its supervisory actions to the citizens of Europe and
their elected representatives. While the independence of the supervisory
function is important, so is its accountability. They are, after all,
two sides of the same coin.

Given the nature of the tasks of supervision and the need for
operational cooperation with other authorities notably where fiscal
costs are concerned separate and robust mechanisms of accountability
have to be in place to legitimise the high degree of independence. The
Commission proposal foresees, in particular, that the SSM will be
accountable to the European Parliament and the European Council.

Questions have been raised about the timeline for when we should
begin our supervisory tasks. Irrespective of the precise schedule for
the performance of supervisory tasks, I believe that it is very
important that the Council Regulation enters into force as envisaged on
1 January 2013. This would allow us to start the preparatory work as
swiftly as possible.

I have discussed the main aspects of the SSM. But the financial
market union would be incomplete without commensurate progress towards a
common resolution regime. The lack of such a regime has increased the
cost of bank failures for taxpayers. It has also complicated the
handling of bank failures, especially in cross-border cases. A common
resolution regime with an independent European resolution authority at
its centre is crucial for managing crises in a way that is as orderly,
effective and efficient as possible.

4. Concluding remarks

Let me conclude my remarks. The euro area is making good progress
towards achieving stable and sound foundations. I trust that in October
and subsequently in December, the Heads of State or Government will
reaffirm their commitment to the irreversibility of the euro by agreeing
on a long-term vision for our economic and monetary union.

That process has not yet had a fully visible impact on the everyday
life of citizens in the countries suffering most from the crisis. I am
well aware of the hardship that the current situation entails for many
people, especially those whose job is lost or at risk.

The adjustment process towards sustainable public finances and a
competitive economy can be painful in the short term, both politically
and economically. Yet, the reforms are necessary corrections which will
bring countries back on the path of sustainable growth. And they also
contribute to improve social justice, by fostering tax compliance and
limiting rent-seeking by vested interests.

I am confident that the euro area and its currently weaker members
will emerge from the crisis with stronger and better functioning
economies and that this will be to the benefit of all Europes
citizens.

Thank you very much.

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