In all these areas, we have made substantial progress in recent years. During the crisis, the ECB has taken all appropriate measures to ensure that price stability provided an anchor in an uncertain and volatile economic environment. Consistent with this principle, our recent decisions have aimed at addressing the risk of too long a period of low inflation and at ensuring that inflation expectations remain firmly anchored. As for financial stability, the crisis has shown us how the functioning of an economy becomes impaired without a well-functioning, robust financial system. This requires striking the right balance between insuring against crises, curbing risk-taking behaviour and mitigating moral hazard with a strong incentive framework. The establishment of the European Stability Mechanism and the launch of banking union, with its Single Supervisory Mechanism and Single Resolution Mechanism, have been milestones in this respect. The stabilisation and ongoing repair of the Greek banking system is another example. As a third dimension, the crisis has shown us the kind of existential threat to monetary union that can be brought about by the build-up of excessive imbalances, i.e. by the lack of fiscal and macroeconomic stability. The lesson drawn from this existential threat was that there was a need to reform economic governance. We should be very careful now not to roll back this achievement, in particular in the fiscal domain. New growth will not be generated by new debt. On the contrary: sound fiscal policies are essential for growing out of debt.
Therefore, the existing rules should be applied, and they should not be stretched to a point where they would lose their credibility. There is built-in flexibility in the Stability and Growth Pact to account for the cost of major structural reforms – but it cannot be based on empty promises. The sequencing should be clear. First, reforms need to be adopted and implemented. Then,  3  Euro area GDP is expected to recover at a pace of 1% in 2014 and 1.7% in 2015 according to the latest ECB staff projections. 4  Total investment in the euro area has shrunk by almost 20% since the peak in economic activity in 2008. In addition, total factor productivity has also been disappointing in the euro area since 2000: it grew by 0.45% annually from 2000 to 2007 before receding by 0.47% annually between 2007 and 2012 (source: Ameco database, European Commission). 5  See Barroso, J.M., “Remarks by President Barroso on the Country Specific Recommendations 2014”, speech given in Brussels on 2 June 2014. BIS central bankers’ speeches  3  the cost of such a reform, independently assessed, could be taken into account under the Stability and Growth Pact, with due attention to the limited fiscal space provided by the high debt levels. Economic stability is a necessary condition for growth, but is not sufficient alone. For our economies to grow out of high debt and unemployment, and thereby ensure social stability, we need to do more.