The Maastricht Treaty includes a general clause that economic policies should be treated as a matter of common concern and coordinated within the EU Council of Ministers. Member States are also required to run their economic policies in accordance with ECB’s primary goal of maintaining price stability. The underlying philosophy was to prevent what economists call “fiscal dominance”: namely, that the misguided policies of governments force the hand of the central bank, and hinder it from pursuing its objective: safeguarding price stability. However, surveillance of economic policies rested chiefly on non-binding guidelines and recommendations. In 1997, this architecture was complemented by the Stability and Growth Pact, which foresaw binding commitments to fiscal rules, backed up by sanctions. These were however not enforced when cases of fiscal slippage arose later on, and not backed by sufficiently strong national fiscal institutions. Outside the realm of fiscal policies, coordination was sought but no specific rules were foreseen. This is another weakness of the Maastricht framework: the absence of a surveillance mechanism for the timely detection of macroeconomic imbalances and their resolution. Those countries with a history of elevated inflation rates and exchange rate devaluations benefited, at the start of EMU, from unprecedented low levels of real interest rates. Over time, these led to wage and price increases that undermined competitiveness. This development showed up in increasingly deteriorating current account positions as well as in bubbles, particularly in the financial and real estate sectors, fuelled by capital flowing from countries with current account surpluses.

At their summit in June, EU Member States entered into a political commitment, and the European Commission is now proposing to create a single supervisory mechanism for banks in the euro area and to entrust this task to the ECB. This single supervisory mechanism should be implemented in a way that does not compromise the ECB’s independence and does not constrain monetary policy. It should be complemented by a single regime to wind down failed banks and by a single resolution fund at euro area level. Finally, building a deeper EMU requires a strengthening of democratic legitimacy and accountability. The people of Europe will only accept a further pooling of competences at European level if European policy-makers are subject to high standards of accountability. 6  BIS central bankers’ speeches  The European Parliament, whose representatives are directly elected by citizens, already plays a central role in holding the ECB and other EU institutions to account. As a consequence of deeper economic and political integration in EMU, the euro area will become, in my view, more and more a “political space” in its own right and, as such, it will require proper euro area accountability mechanisms. Political legitimacy is vital to build popular support for further integration. 4. Conclusion  Ladies and Gentlemen, When Robert Schuman drafted the declaration that started the European integration process, he predicted that “Europe will not be made all at once, or according to a single plan. It will be built through concrete achievements which first create a de facto solidarity”.