By fostering fiscal discipline, it contributes substantially to the noninflationary growth potential of the euro area. Prudent fiscal policies reduce the debt-to-GDP ratio and, consequently, the interest burden on governments; they increase investors’ confidence in the euro area, keep interest rates lower than they would otherwise be, and lead to a crowding-in of private investment.
Even as we implement measures to build a stronger, better capitalised financial system, banks and their investors need to be reassured as to their prospects for pursuing profitable business models going forward. This means allowing room for innovation and flexibility, without short-changing fundamental policy goals such as controlling leverage and enhancing consumer protection.