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"Without doubt, sustainable crisis resolution has to tackle the root causes of the crisis. The origins of the euro area crisis are diverse, but they essentially lie in national imbalances, the shortcomings of the institutional framework and, above all, its implementation. Broadly speaking, the imbalances in today’s crisis countries arose because, for many years, they had been borrowing to "live beyond their means". In the language of economists, they had absorbed more than they produced for many years and therefore found themselves with persistent current account deficits – which were only possible because of easy external funding.
"The unique structure of Europe’s monetary union is a source of inherent instability: the Eurosystem has a single monetary and foreign exchange policy but each country is responsible for its own fiscal and economic policy. This kind of framework allows far more of the consequences of one country’s unsound fiscal policy to be passed on to the other member countries. To limit the resulting incentives for government borrowing, the founding fathers of the monetary union established fiscal rules – notably the deficit limit, the no bail-out rule and the ban on monetary financing of governments.
"Substantial measures were taken to contain the euro area crisis. These measures – notably the two European stability mechanisms, the EFSF and the ESM – stabilised the euro area in the short term by offering financial assistance in exchange for structural reforms. Technically, that is tantamount to funding current account deficits with public money. In return, the recipient countries promised to tackle the root causes of their problems. In effect, however, the numerous crisis measures increased mutual liability within the euro area without establishing any effective control rights in return. This upset the balance between liability and control. Yet I believe that this balance is fundamental to the stability of Europe’s monetary union.
"One option for redressing the balance would be to make greater mutual liability conditional on greater mutual control. The member states would then have to be prepared to relinquish national sovereign rights to the European level and thus combine the existing monetary union with a fiscal union. However, it seems to me that there isn’t a broad consensus for this among the member states. As long as the will for such a move is lacking, I regard strengthening the existing Maastricht framework as the only viable solution. To achieve this, we need to eliminate the flaws I have mentioned here today.
"Preparations for the Single Supervisory Mechanism based at the ECB are now being made against the clock so that it can be launched on schedule in a year's time. Given the potential conflicts of interest between the new supervisory tasks and the ECB Governing Council’s monetary policy mandate, basing the Single Supervisory Mechanism at the ECB is not without its problems. Certain precautionary measures are being taken to minimise such conflicts of interest from the outset. But in the long run it would still be advisable to move banking supervisory tasks away from the ECB and make the supervisory authority a separate European institution.
[…] "Monetary policy faces a delicate balancing act. It must ensure that it is not held to ransom by politicians. And it must take care not to get roped into fiscal objectives, thus creating a situation in which monetary policy is largely dictated by fiscal considerations and inflation control is treated as secondary to the government’s financing needs or short-term financial stability aspects.
[…] The institutional reforms I have outlined are necessary but not sufficient to ensure a stable monetary union. Satisfying the requirements of a monetary union also means taking economic policy measures at national level which ensure competitiveness and sustainable economic growth. This applies especially – but not exclusively – to the so-called crisis countries. France, for example, can hardly be described as a crisis country, yet it also needs to become more competitive, especially given that the French economy has lost a seventh of its share in the world market over the past five years. Germany also faces some economic policy challenges, and not just because it needs to set an example for the rest of Europe."