To improve labour mobility within Europe, an EU-wide recruitment tool will be developed and measures taken to strengthen the portability of pension rights and the recognition of professional qualifications. This strategy confirms an important evolution in the thinking of European policymakers. They are acknowledging that the smooth operation of the single currency requires flexible markets for goods, services, and labour. They are aiming to maximise the gains of the world’s largest single market, rather than acting as 27 national markets. And they are exploiting EU funds as a tool to support aggregate EU growth, rather than for quid pro quos between Member States. Reaping the full gains from economic integration in Europe, combined with structural reforms at the national level, will help lay the foundations for more sustained growth going forward. 3. Future of EMU  Some observers, of course, question whether such a forward-looking perspective is relevant. This is due to the third criticism I outlined: the belief that economic and monetary union cannot work due to institutional flaws. In the view of these critics, the euro area is too decentralised, too diverse and too disunited to function as a single currency area. They conclude that its survival cannot be guaranteed. Clearly, there is an institutional gap in the euro area. In the aggregate, the euro area enjoys better fundamentals than the U.S. or Japan, and yet it is viewed as a much more risky place to invest.
Budget cuts will only lead to lower growth, higher unemployment and larger deficits. I see no contradiction between fiscal consolidation and sustainable growth. In fact, the one is a pre-condition for the other. I do not deny that there are negative demand effects in the short-term. But for the longer-term, sound fiscal policies are essential to lower borrowing costs and encourage investment. Moreover, in those countries experiencing severe sovereign debt tensions, fiscal consolidation is unavoidable to maintain market access. That said, there is clearly a need to take measures to strengthen the growth potential of the euro area’s economies. These measures also need to have effect in the short-term so as to soften the short-term impact of fiscal consolidation. Recognising this, the European Council on 28–29 June agreed on a “Compact for Growth and Jobs”. This Compact aims to free up to 120 billion euro for growth and investment, representing roughly 1% of euro area GDP. This comprises a 60 billion euro increase in the lending capacity of the European Investment Bank; 55 billion through the reallocation of structural funds to growth-enhancing measures; and 4.5 billion of investment financing through a “project bond” pilot phase. On top of that, the European Council took a number of measures to improve the functioning of the Single Market and facilitate adjustment within monetary union. The single market in services will be completed, which is expected to yield economic gains of up to 330 billion euro.