The need of low fiscal imbalances and flexible labour and product markets is especially important in the euro area. Unlike the United States, for example, the euro area does not have a central fiscal authority that can redistribute fiscal resources from a low-unemployment region to a high-unemployment region to reduce the effects of asymmetric shocks.
The regulatory response This brief and highly stylized history is intended to recall that there were two major regulatory challenges revealed by the crisis. First was the problem of too-big-to-fail financial firms, both those that had been inadequately regulated within the perimeter of prudential rules and those like the large, free-standing investment banks that lay outside that perimeter.