The euro area economies were badly affected by the crisis (first financial, then economic, then sovereign debt), and the fiscal adjustment that became necessary to overcome it has had a negative impact on growth as well. ECB projections see a gradual recovery taking shape later this year. A number of elements support this view: •  Our accommodative monetary policy stance – which will remain so for as long as necessary – should contribute to underpinning this recovery;  •  Recent developments in economic sentiment survey data have shown some improvement from their low levels;  •  Looking ahead to later in the year and to 2014, euro area export growth should benefit from a recovery in global demand, while domestic demand should be supported by our accommodative monetary policy stance and by the recent real income gains due to lower oil prices and lower overall inflation. •  Furthermore, the significant improvements in financial markets seen since last summer boost confidence and generate wealth effects and should work their way through to the real economy, as should the progress made in fiscal consolidation. Nevertheless, the Governing Council continues to see downside risks surrounding the economic outlook for the euro area. They include the possibility of weaker-than-expected domestic and global demand and the slow or insufficient implementation of structural reforms in euro area countries.
As well as being a year that saw a considerable strengthening of fiscal and macroeconomic discipline in Europe, 2012 also saw significant progress towards a banking union. Why has a banking union suddenly become such an indispensable and urgent project? Simply because we are now certain that many of the problems we have experienced, could have been avoided with a banking union. A banking union is necessary for the smooth functioning of a monetary union for the following three reasons: •  It breaks the link between banks and sovereigns by bringing banking supervision and crisis management to the federal level. With the banking union, banks will be considered as euro area institutions over and above their nationality; it will ensure that credit conditions in the euro area will not depend on where you are but on who you are, which is what should be expected of an efficient financial market. •  It allows re-integration of the European banking system. A supra-national supervisor is in fact better placed to assess the risks of cross-border activities and therefore to protect and encourage such activities; it is not subject to national biases that can lead to the temptation of economic introversion. It is therefore more credible and strengthens stability and confidence in the area;  •  Moreover, it restores the full efficacy of monetary policy.