The strategy to achieve this consists of two key elements: first, to unwind the imbalances that had arisen during the first decade of EMU; and second, to ensure an adequate institutional framework and sufficient structural flexibility of individual Member States so that the risk of such imbalances occurring again is minimised. The first challenge is to restore price and cost competitiveness.
In a monetary union such as the euro area, with a single currency and a single monetary policy, the main adjustment mechanism is the competitiveness channel which works via an adjustment in relative prices and costs. Over the next few years, the restoration of competitiveness will require significant further adjustments in a number of countries which have seen an erosion of competitiveness.