But they should be supported by strong institutions with discretionary powers. Mario Draghi pointed out 1 the fundamental difference between a monetary policy institution and fiscal rules, which are exemplified by the track records of the ECB and SGP respectively. Third, there is room for an intermediate level of integration, as shown in a simple but illustrative matrix. I would call it “full coordination of national policies”, a presently missing link between integration, as we have for monetary policy decision-making, and rule-based surveillance, such as is currently the case for national fiscal policies in Europe and which is clearly lacking teeth. 1  2  Speech by Mario Draghi, President of the ECB, at SZ Finance day 2015, Frankfurt am Main, 16 March 2015. BIS central bankers’ speeches  To be sure, the highest level of policy integration would logically involve building a genuine fiscal union, as well as completing the Single Market; but that would surely require more ex ante convergence and resolution of legacies from the past. My view is that we should leave the door open to further integration for countries that are willing and ready to consider it. Yet the most urgently needed part of EMU reform, is to set up a strong institution, led by a Euro area Finance Minister, to fully coordinate national fiscal and structural policies. In economic terms it would help internalize negative externalities (e.g. demand spillovers, or financial contagion) from asymmetric shocks across jurisdictions, as well as optimize positive externalities between fiscal and structural policies.
What the world will look like in 2050 will be partly shaped by the future of Europe; and the future of Europe depends on the decisions we take now. Of course, we always face the risk of failure when conducting far-reaching reforms. Yet we cannot afford another missed opportunity and we have to act swiftly without losing a longer term view. For the Euro area, for its citizens, 2016–2017 is the decisive time to act. 4  4  Interview of Robert Mundell by Laura Wallace, « Ahead of his time », Finance and Development, IMF, September 2006, vol 43, n° 3. BIS central bankers’ speeches  BIS central bankers’ speeches  5