In particular, misaligned budgetary policies, unsustainable wage developments and structural rigidities in product and labour markets, as observed in several countries, constitute a source of persistent inflation differentials within the currency union. These in turn represent also a challenge for monetary policy.
As regards the origin of such institutional shortcomings, there are four factors that play a particularly prominent role: first, weakly enforced fiscal rules incapable of promoting prudent fiscal policies in times of favourable economic conditions; second, the absence of a mechanism to prevent and correct macroeconomic imbalances within the EU; third, insufficient coordination of macro and micro-prudential supervision of financial sectors at the EU level; and finally, the absence of a crisis management framework to avoid contagion between countries and sectors.