Inattention to macroeconomic risk – and the many ways in which such risk interacts with fragile fiscal structures – prepared the ground for the budgetary troubles that some euro area countries are facing today. This brings me to reform of economic governance. The EU is about to introduce surveillance focused on imbalances and divergences in competitiveness across the euro area. This is long overdue.
Since 2005 within the Eurogroup and – shortly thereafter – publicly, the ECB has warned that such divergences create considerable risks and must be corrected. If fully implemented, macroeconomic surveillance will make a strong contribution to the smooth functioning of EMU.