Some necessary steps have already been taken. The fiscal rules have been stiffened, with greater automaticity in the Stability and Growth Pact and the introduction of the fiscal compact. However, as we have learned from the crisis, rules can only be the first line of defence and they have to be applied to fulfil their purpose.
Thus, the current debate in Italy and France about their fiscal stance is not reassuring. This underscores the need to buttress the rules with functioning market discipline. Sound public finances will only be achieved if we rigorously set about restoring the balance between liability and control. One way to do this would be a genuine fiscal union.