And contrary to common perceptions, this is not only about bringing general government deficits under the 3% line, but it is also about bringing them closer to balance or to surplus in the medium term so that fiscal space can be used in the event of a recession. But even ex ante solvent governments can come under pressure in the face of very large shocks. Absent national stabilisers, such as an autonomous monetary policy and exchange rate, such shocks have already tested the cohesion of the currency union as a whole. This is why a common monetary policy needs a complement in the form of a common fiscal instrument that can support – under proper democratic control – aggregate demand if need be. Many of the Economic and Monetary Union (EMU) reform proposals that are currently being discussed would help bolster these three lines of defence. Enhancing national ownership of structural reform efforts, for example, could help make our economies more agile. A true capital markets union, leveraging the benefits of fintech innovation, would significantly boost the capacity of our financial markets to diversify and reduce risk, while the ECB has often argued that a European deposit insurance scheme is a precondition for a truly integrated banking system and safe money. And the Single Market still has a lot of untapped potential, in particular in the field of services. These should be priorities. More credible fiscal rules and greater market discipline would strengthen the second line of defence.
These characteristics of the crisis shape the two principal challenges that financial systems face today: reviving the flow of credit to economic agents, and the orderly restructuring of the financial system. Let us analyse these two issues separately. The first and most immediate aim is that credit and liquidity should once again flow unimpeded towards companies and consumers. The resolute action of European central banks and governments since October has meant that illiquidity strains have largely been resolved in the financial sector. However, credit to companies and consumers has been checked by banks' mistrust, by the increased risk profile of borrowers and by the sharp decline in demand resulting from the slowdown in economic activity. The deceleration is proving particularly acute and credit growth has fallen from a rate twice that of nominal GDP before the crisis to around 5%. And the prospect is that this trajectory will continue on the immediate horizon, with credit growth dipping to a zero or even negative rate. That generates a perverse effect which feeds back into the difficulties of both those demanding and supplying financing, making a global approach necessary: just as it is inconceivable that the current difficulties of the financial sector may be resolved if the downward spiral of the Spanish economy is not curtailed, nor may it be assumed that the current situation can be plausibly overcome if the flow of credit were to seize up.