The lesson from this experience was clear; an effective economic and monetary union needs to include a banking union. A crisis-induced economic adjustment The euro-area crisis served two vital purposes. First, it acted as a wake-up call to policymakers in economies that had become uncompetitive. Second, it brought to the surface fundamental weaknesses in the EU’s institutional structure.
Consequently, since the onset of the crisis, policymakers in the stressed countries have made significant progress in addressing fiscal and external imbalances. At the same time, institutional flaws in economic and financial governance are being addressed. In what follows I will first focus on the adjustment that has taken place in Greece. Consider, first, fiscal adjustment.