Seeing rebalancing as being all about cutting costs is misguided as benefits diminish with more countries engaging in such activities. However, pursuing structural reforms to raise productivity, in contrast to wage moderation, benefits substantially and uniformly all countries. “We do not need all euro area countries to adopt identical structural reforms. What we need is a framework that takes into account both how  19  Constâncio, V. ibid. 20  Baker, A. (2013): The bankers’ Paradox: The Political Economy of Macroprudential Regulation, School of Politics, International Studies and Philosophy, Queen’s University of Belfast. 21  Draghi, M. (2016): How domestic economic strength can prevail over global weakness, keynote speech at the Deutsche Börse Group New Year’s reception 2016, Eschborn, 25 January 2016. 22  European Commission (2015): Completing Europe’s Economic and Monetary Union, Report by: Jean-Claude Juncker in close cooperation with Donald Tusk, Jeroen Dijsselbloem, Mario Draghi and Martin Schulz. 23  Coeuré, B. (2016): Rebalancing in the euro area: are we nearly there yet?, speech at the Danish Economic Society, Kolding, 15 January 2016, (https://www.ecb.europa.eu/press/key/date/2016/html/sp160115.en.html). 6  BIS central bankers’ speeches  countries differ based on their national conditions, and how they are similar by virtue of being in a monetary union. Within those parameters there are various combinations of countryspecific institutions that can produce smooth adjustment.” (Praet, 2015) 24. These notions should, of course, be the key ingredients of the Macroeconomic Imbalance Procedure and the Structural Reform Support Programme (as of 2017).

The traditional monetary trilemma limits policy choice to only two among the three dimensions: independent monetary policy, free capital mobility and exchange rate stability. However, the usefulness of exchange rate flexibility as the shock absorber has been increasingly questioned over time. A more sceptical view on the usefulness of flexible exchange rates has changed the trilemma into an “irreconcilable duo: independent monetary policies are possible  9  Gros, Daniel. (2011) What is holding Italy back?, CEPS Commentary, 8 November 2011. 10  Hassan F., G. I. P. Ottaviano (2013), Productivity in Italy: the great unlearning, VoxEU.org, 30 November. 11  Constâncio, 2015. ibid. 12  Stanley Fischer (2010): Myths of Monetary Policy, Israel Economic Review, 2010. 4  BIS central bankers’ speeches  if and only if the capital account is managed” (Ray, 2013) 13. Those who believe that exchange rate flexibility should not be abandoned, even in the cases of small open economies, have largely deflated their expectations of flexible exchange rates to act as shock absorbers 14. Therefore, the notion that “the global financial cycle constrains national monetary policies regardless of the exchange rate regime” has now become part of common knowledge. With supranational “one-size-fits-all” monetary policy, the role of national fiscal policy in stabilizing real activity and inflation has, accordingly, increased in euro-area member states. However, the configuration of single monetary policy, coupled with national fiscal sovereignty and the no bail-out clause, has generated suboptimal policies and frictions that threaten the monetary union.