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The crisis revealed several shortcomings in the initial structure of the euro. At the EU level many decisions have been taken to strengthen the institutional set-up in the EU and in particular in the euro area. These measures aim at addressing financial market tensions and restoring confidence and reviving growth. Among these measures are the building up of firewalls (e.g. the entry into force of the ESM), the ongoing preparations for a Banking Union, as well as non-standard measures by central banks, such as the Outright Monetary Transactions (OMTs) outlined by the ECB.
In addition to the EU and euro area level measures, the Member States are working hard. They are undertaking structural reforms aiming at reaching higher growth trajectories and creating more jobs. There is a wave of reforms going on across Europe, e.g. in Italy and Spain. Have these steps already had an impact?
The good news is that our analyses show that adjustment is underway. It has become visible in deficit countries, where the reduction of large current account deficits is progressing. Competitiveness lost during the first decade of EMU is being regained, as unit labour costs clearly show.
The tougher news is that this process has farther to go. But the reform programmes have increased the degree of wage and price flexibility in vulnerable countries. This improves their capacity to reallocate resources to more productive sectors and to contribute to rebalancing in the euro area. This will have a positive impact on growth in the medium term.
In the short term, we need to restore confidence and normal lending conditions across the EU. Financing conditions have become very tight in vulnerable countries. This complicates the ongoing deleveraging process, even if we have seen some improvement over the last couple of months. Lack of confidence is currently restraining investment also in surplus countries.
Fiscal consolidation and improved economic integration are necessary conditions for monetary and financial stability, but they are not sufficient for lifting Europe onto a path of growth and jobs.
The Commission has tabled a wide range of growth-enhancing proposals. Some are part of the Compact for Growth and Jobs. It was agreed at the European Council in June and commits all Member States to take immediate action at national level. The full potential of EU policies must be exploited to this purpose. This includes deepening the Single Market by removing remaining barriers. The Commission has also accelerated its work on the implementation of the Services Directive. We want to eliminate the restrictions on company structures or capital and facilitate access to regulated professions.