the seventeen countries sharing the single currency. The status and role of the United Kingdom, the dynamics of the British domestic debate on Europe, and the cooperation with the Continent in addressing the crisis are not the focus of my remarks. I have three main propositions. First, membership of EMU entails much deeper policy changes than were originally realised. In 1991, Hans Tietmeyer, the former President of the Bundesbank, remarked that “monetary union is not just a technical matter. It is in itself, to some extent, a political union”. What has become clear is that countries that adopt the euro as their currency are required to adjust fundamentally the way in which they conduct their economic and financial policies. At the same time, ensuring overall stability requires far-reaching coordination in economic and financial governance. It would be difficult to understand that in the world’s second largest monetary area governance is outsourced solely to the markets and ratings agencies. Effective governance of an economic area of such importance requires much closer economic and financial union. Second, in response to the crisis, a much more radical change in euro area governance has taken place than many observers seem to acknowledge. Europe tends to reform incrementally, at times creating frustration at the pace of change. But those increments now add up to a fundamental overhaul of its economic management.
Italy has agreed to a technocratic government to ensure structural reforms are implemented, and invited the IMF to give extra credibility to this process. All euro area countries, except those under a programme, have committed themselves to bringing their budget deficits below 3% of GDP by 2013 at the latest. Overall, the forward commitments of euro area countries to fiscal sustainability go far beyond what has been agreed in the U.S. or Japan. Each of these measures, seen individually, may not represent the “shock-and-awe” or “big bazooka” that some commentators and markets participants call for. But when seen collectively, they represent a comprehensive broadening and deepening of euro area economic governance. And relative to a reasonable benchmark – the status quo ante – they are very significant developments. It is also worth noting that many steps have been taken to strengthen the financial sector regulation and supervision. Under the leadership of the G20, a remarkable amount of work has been done by the Financial Stability Board (FSB) and the Basel Committee in a demanding timeframe. Profound regulatory reforms need to be implemented to address the underlying deficiencies that have become apparent in our financial system. In general, Europe is exceeding international benchmarks in implementing these reforms. The Commission issued a proposal in July 2011 aimed at transposing the Basel III framework into EU Law. By doing this, it is among the first to introduce the Basel III framework and is taking a leading role in delivering on the G20 commitments.