Otherwise, a durable single currency would not be feasible. Yet given that political union in Europe over the short term is inconceivable, will a monetary union not be able to survive without political union? In my view, the most important lesson we’ve learned in this crisis is that it is possible to enjoy the benefits of a single currency without political union, but only if strong divergences between the member countries are avoided. This has been understood by the European Union and is what has prompted the changes to the Stability and Growth Pact and to economic governance, which are intended precisely to correct divergences before they become so great that they are difficult to redress. And it must be acknowledged that here a good deal of progress has been made over the past year. The unfolding of the crisis has shown that the governance model in place to date in the EU has been of no use in ensuring economic policy consistency or in managing crisis episodes flexibly and effectively. It’s now clear that public finances were not sufficiently restructured in the upturn, that macroeconomic divergences were excessive and that we need a well-designed financial aid mechanism to assist ailing countries swiftly and effectively. Mindful of this, European governments and institutions have taken major steps towards correcting deficiencies in three fundamental areas: the strengthening of fiscal discipline, closer surveillance of macroeconomic maladjustments and the creation of a permanent crisis-management framework.
Starting with fiscal discipline, public debt levels will be more closely monitored and countries will have better incentives to comply with their commitments, through the introduction of broader and transparent sanctioning arrangements, which will moreover be applied at an earlier stage and, as far as possible, automatically. Further, the reform of national fiscal frameworks is being promoted, so that budgetary policy rules and surveillance systems will be adopted that help curtail spending. Moreover, a new framework for the prevention and correction of macroeconomic imbalances is being established. The aim of this mechanism is the early identification of the emergence of potentially “excessive imbalances”. When imbalances are considered to be too big, an excessive imbalance procedure will be initiated which will include recommendations for the adoption of corrective measures. The third key element of EU economic governance reform is the creation of a permanent crisis-management instrument, the so-called European Stability Mechanism, which will come into force in mid-2013. Geared to lend up to € billion, this mechanism will provide funds to countries with liquidity problems under strict conditionality. Finally, a mention for the Euro Plus Pact, approved in March by the euro area Heads of State and of Government. This pact involves a commitment at the highest political level to adopt the measures needed to attain competitiveness and employment-promoting objectives, to contribute to the sustainability of public finances and to reinforce financial stability.