In Europe, it is the consequence of an economic and financial crisis resulting from weaknesses in the architecture of Europe’s Economic and Monetary Union (EMU). Institution-building takes time. Even though European integration started over six decades ago, the building of those institutions remains a work in progress. But to understand the challenges that Europe is currently facing, we should take a step back and look briefly at the origins of the Europe’s integration process. I will then share with you my thoughts on what I believe to be the main shortcomings in the current EMU framework. Finally, I will give you my views on the short- and longer-term measures that the euro area should take to overcome the crisis. 1. Building Europe after World War II: the path towards economic and monetary union  In 1945, Europe emerged from the Second World War as a devastated continent, economically broken and politically divided. But even during the darkest days of the war, there were some Europeans who were convinced that Europe would eventually overcome its divisions and unite in peace. One of them was Robert Schuman, a French statesman, who in 1950 made a declaration that became a rallying cry: he proposed that Europe should aim for closer economic and political cooperation. The declaration was well received, also by West Germany. This was a crucial point because Germany and France had been rivals in a century-long quest for dominance over the European continent.
According to research, the productivity rise was mostly due to what we call "total factor productivity", that is improvements that can be attributed neither to capital nor to labor, but to specific organizational, technological and institutional changes that result in productivity rises and GDP growth. In the past few years, the new EU member-states register trends of positive influence also of the labor to the economic growth, while among the SEEU countries this contribution is still mainly negative. 3 Structural and institutional reforms also had key influence on the accelerated productivity growth. Transition indicators of the EBRD that are commonly used for assessment of the reforms indicate that the new member-states have already reached the level of the developed countries in the fields of privatization, price liberalization, trade and foreign exchange systems (although they are still lagging behind with respect to the enterprises restructuring, competition protection, banking reform and liberalization of the interest rates and financial markets and institutions, as well as the overall infrastructure). 4 On the other hand, these indicators clearly point to the fact that the SEEU countries, are significantly lagging behind with the reforms in all these areas, except price liberalization and to a certain extent trade and foreign exchange systems. The process of accelerated income increases, that is the process of real convergence, also initiated the process of nominal convergence.