A key issue is how emerging markets will be impacted by tighter financing conditions (and the ensuing capital outflows) and to what extent this will have repercussions for euro area foreign demand. Against this background, ensuring the continued resilience of the euro area economy is paramount. Second, there are policy challenges related to our financial markets. The euro area financial system weathered several episodes of stress in the second half of last year. This is a sign that a lot has already been achieved with the establishment of banking union, which, however, is not complete yet. To make our financial system truly safe and sound we need to progress in two main domains, which complement each other. On the one hand, we need to finalise and implement the work we started when establishing the Single Supervisory Mechanism and Single Resolution Mechanism as the initial pillars of banking union. This includes further regulatory work to harmonise our rules for supervisory action and ensure a consistent application of the Bank Recovery and Resolution Directive’s bail-in provisions. On the other hand, we need a common public backstop for the Single Resolution Fund to strengthen its credibility and we need to ensure that confidence in the safety of deposits is equally high in all 2  BIS central bankers’ speeches  euro area Member States by establishing a European Deposit Insurance Scheme.
“Riskreduction” and “risk-sharing” measures are two sides of the same coin and should be pursued in parallel: they are all essential to protecting the stability of the European banking sector. Third, there are challenges related to the fiscal and economic policies of Member States that require decisive policy action. Fiscal policies should contribute to the economic recovery. At the same time, they should be in full compliance with the requirements of the Stability and Growth Pact. This is important to maintain confidence in the European fiscal framework and in the sustainability of public finances. Moreover, countries would benefit from a more growthfriendly composition of fiscal policies. This could involve greater efficiency of public sector services as well as moving to a more growth-friendly tax system. But the ongoing cyclical recovery in the euro area should also be supported by effective structural policies, particularly actions to improve the business environment, including the provision of an adequate public infrastructure. Such actions are vital to increase productive investment, boost job creation and raise productivity. If reforms are credible, carefully chosen and well designed, their positive effects can be felt quickly, particularly in the context of our supportive monetary policy stance. Fourth and finally, there is still political uncertainty surrounding the European project. This is true in the broader context of our Union. A solution that would anchor the United Kingdom firmly within the EU while allowing the euro area to integrate further would boost confidence. The Economic and Monetary Union architecture also remains an unfinished construction.