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[...]The second decade produced the worst economic and financial crisis since the Great Depression. As I had the opportunity to discuss at length in my remarks at the Parliament's plenary debate two weeks ago, as a response to the crisis we had to deploy new instruments to safeguard the effectiveness of our monetary policy and stabilise the euro area economy.
Thanks to the collective efforts of all European citizens, the euro area has emerged from this crisis. The results of their and their representatives' determination have been tangible: 22 consecutive quarters of economic growth, the unemployment rate at its lowest level since October 2008, and wages and incomes on the rise.
However, over the past few months, incoming information has continued to be weaker than expected on account of softer external demand and some country and sector-specific factors. The persistence of uncertainties in particular relating to geopolitical factors and the threat of protectionism is weighing on economic sentiment.
At the same time, supportive financing conditions, favourable labour market dynamics and rising wage growth continue to underpin the euro area expansion and gradually rising inflation pressures. This supports our confidence in the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term. Significant monetary policy stimulus remains essential to support the further build-up of domestic price pressures and headline inflation developments over the medium term. This will be provided by our forward guidance on the key ECB interest rates, reinforced by the reinvestments of the sizeable stock of acquired assets. In any event, the Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation continues to move towards the Governing Council's inflation aim in a sustained manner.
The euro's external dimension
The benefits of the euro have not been limited to the European internal dimension. Standing together within the Economic and Monetary Union (EMU) allowed us to retain sovereignty that would otherwise be lost by individual countries in a highly integrated world economy. [...]
The international benefits of sharing a currency go beyond the monetary sphere. In a world with deep economic and financial interlinkages, international cooperation is essential and we can more effectively promote European ideas and interests by speaking together. Indeed, the euro area's voice has been crucial in strengthening the international financial regulatory framework after the global financial crisis. Today, the Single Supervisory Mechanism is the largest banking supervisor globally and successfully contributes to shaping the international supervisory framework.
Since the global financial and euro area debt crises, however, the euro's international role seems to have gradually eroded. While its importance as the currency of invoice for international trade transactions has remained broadly stable, its role in global foreign reserves and global debt markets has declined.
This decline is a symptom of the fault lines in EMU exposed by the crises. Concerns about the resilience of the EMU architecture and about financial fragmentation underpinned this erosion. Indeed, stability, financial depth and liquidity are among the key determinants of an international currency.
European policymakers are now paying closer attention and various calls have been made in recent months for the euro to assume a stronger international role. The Euro Summit of December 2018 encouraged work to be taken forward to this end.
The international role of the euro is supported by the pursuit of sound economic policies in the euro area and a deeper and more complete EMU. And this requires further efforts along the path of deeper integration.
Completing the Economic and Monetary Union
[...]First, we can build on the synergies between EMU and the Single Market. The Single Market is indeed one of the most powerful tools we have to unlock the mechanisms that will raise productivity. In particular, a genuine capital markets union (CMU) would not only ease and diversify access to funds for households and firms, thus fostering investment and innovation. It would also enable risk diversification and thus compensate for temporary drops in activity locally - the so called private risk-sharing -, thereby reinforcing the overall resilience of EMU.
Second, it is essential to complete the projects that we initiated during the crisis, namely the banking union. Together with CMU, a complete banking union would deliver meaningful private risk sharing that is currently lacking in the euro area in comparison to the US.
But private risk sharing, to be effective, needs to be supported by other policies.
We should thus rekindle trust in our economic and fiscal framework, by making it more effective in ensuring sound policy making at national level. These actions can also be further supported at the European level by the recent decisions to launch an instrument for convergence and competitiveness for the euro area.
To tackle future cyclical crises, the two layers of protection against shocks - the diversification of risk through the private financial system on the one hand, and public countercyclical support through fiscal instruments at the national and European levels on the other - need to interact in a complete and efficient manner. [...]