Another aspect of EMU governance is strengthening the economic part of EMU. This requires structural reforms aimed at enhancing potential growth, reducing structural unemployment and increasing national economies’ resistance to shocks. While many euro area countries undertook a wave of reforms during the crisis, today, across much of the area reforms have stalled. This is not a uniform picture. Malta is enjoying robust economic growth despite regional headwinds, largely as a result of reforms implemented in recent years that stimulated the development of new areas of economic activity and increased labour participation. Malta has also taken full advantage of its membership of the EU and its adoption of the single currency. Resilience to shocks can also be built up through deeper economic integration. Indeed, as the Five Presidents’ report argues, financial integration helps to share risk across EMU member countries. The completion of a Banking Union, which will strengthen the European banking sector, is a key objective in this regard. In this area, success so far has been partial. The Single Supervisory Mechanism involving the ECB via the Supervisory Board and the national supervisory authorities is up and running, following a comprehensive health check of the euro area banks. The Single Resolution Mechanism is also operational and is being funded according to plan. As regards the third pillar of Banking Union, the European Deposit Insurance Scheme (EDIS), negotiations are still under way. We believe that EDIS is will increase confidence in banks across the euro area.
Although the process of financial integration in the euro area was heavily disrupted in the aftermath of the global financial crisis in 2008 and the sovereign debt crisis in the euro area in 2011, the single currency area has held together. These gains should not be lightly discarded. 1  But the double shock of the financial crisis and the subsequent fiscal crisis has hit EMU hard. The euro area economy is currently in a moderate, gradual recovery that has been under way since the second quarter of 2013. However, in some member states that were hit the hardest by the sovereign debt crisis, output remains considerably below the levels registered in 2008. Unemployment rates diverge considerably across the euro area, ranging from over 20% in Greece to below 4% in Germany. The euro area is facing pressure along four different fault lines. First, there is the tension between euro area member states that are in different cyclical and, in some cases, secular positions and yet face the same nominal interest rate and exchange rate. Second, there is the related tension between monetary policy that is determined at the level of the euro area as a whole and fiscal policy which has remained, in effect, largely national. Third, there are tensions that arise from the fact that the single currency is embedded in an incomplete single market, including only a partial banking union.