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From the start, we have worked on two fronts: combating the immediate crisis, and ensuring it never happens again. From the start, we have said in words and showed in deeds that "we-will-do- whatever-is-necessary-to-safeguard-the-financial-stability-of-the-eurozone". This is almost becoming our new European motto, our mantra… !
Which brings me to the reasons I am convinced we will get there. Three points.
First: there is a genuine willingness amongst EU leaders to address the systemic nature of the crisis. To finish a house half-built. And this is new. All now acknowledge that the crisis is not only the sum of individual countries' problems, but also the result of deficiencies in the Economic and Monetary Union architecture. All are now willing to put every issue on the table, without taboos. And all recognise that we can no longer solve our short-term problems without addressing the longer-term challenges. As one central banker put it, if we want investors to buy 10-year government bonds, they expect an answer on what the eurozone will look like in ten years' time.
The leaders commit themselves to bringing the EMU to its solid and stable end-state in the years ahead. And having talked with many of them in the past weeks and even days, I can confirm their political will is unyielding. In practical terms, there will be a consultation process with all institutions and Member States, resulting in an interim report in October (focused on substance) and a final report in December (which will also look at legal and institutional matters). They will focus on the four building blocks identified in the report we released in June:
These four building blocks are inextricably linked: progress on one will depend on progress on another. The underlying key principle is that we need to do what is necessary to make the euro solid and safe. Some commentators – and no doubt many of your interlocutors – pretend we are faced with the stark choice between either breaking-up or turning instantly into a federation. They are wrong. Europe does not work like that. We will overcome the crisis not through revolution, but through reform and evolution. The work ahead is to define the content and sequencing of all the steps.
Let me move to the second reason why I am confident we will overcome the crisis: the reform efforts by individual Member States are starting to bear fruit. This is crucially important. Countries in difficulty need the perspective that things are moving in the right direction. Reforms may be costly and difficult in the short term but they will contribute to growth and employment in the medium term.
Here we already see real changes. A recent report shows how two key indicators for competitiveness, 'unit labour costs' and trade deficits, are improving. Progress in structural reforms is also ongoing. There is now much more convergence on economic developments and policies than two years ago. Spain and Portugal have made their labour markets more flexible. Greece has opened up 150 closed professions. Italy adopted an impressive set of structural reforms. In Ireland labour costs have fallen substantially and the country is already in part back to the markets.
Last week I visited Prime-Minister Mariano Rajoy, later this week I will meet Prime Minister Samaras and Prime Minister Monti. However different their circumstances, they are all determined to steer their countries into safer waters. Ireland is on track, and so is Portugal. And obviously all other Member States are also continuously reforming their economies! And they have to.
Which brings me to the third reason for my confidence: in the meantime, whilst these reforms are underway, there is a readiness to take the short-term measures needed. As I said, adjustments in countries under market pressure are difficult and need time to yield results. Risk premiums for some countries are not always justified by their economic fundamentals (and I speak mildly when I speak in those terms). In addition, financial markets within the eurozone are becoming increasingly fragmented to an extent that it is making very difficult to conduct a single monetary policy. This is not sustainable. In this context, national reforms are necessary, but they may not be sufficient in the short term.
For these cases, European leaders have stated during the June European Council their readiness to provide additional assistance. In parallel, the ECB has presented on 2 August a framework, outlining a series of possible actions to deal with the fragmentation in financial markets. I fully support the European Central Bank's efforts in this respect. It is key to keep in mind that all decisions on short-term measures – be it by the ECB or other institutions – are driven by our long-term vision. And in this vision, one thing is clear: the euro is here to stay!