The existence of fiscal rules at the EU level, codified in the Stability and Growth Pact and in the  4  BIS central bankers’ speeches  Treaty Excessive Deficit Procedure, was motivated by the need to ensure fiscal discipline, preserve fiscal space and hence allow automatic stabilisers to play out in full during downturns. More fundamentally, the fiscal rules were supposed to prevent countries from pursuing irresponsible fiscal policies with negative externalities on the rest of the monetary union. However, the previously existing framework did not have sufficient “teeth” and its implementation by Member States within the Eurogroup remain insufficiently strict. As a result, EU fiscal rules did not constrain budgetary policies sufficiently.5 At the beginning of the crisis, it became painfully evident that the euro area was also lacking effective crisis management tools. First, the design of the euro area assumed that stabilisation would take place at the national level and to a large extent automatically. The crisis has shown us, however, that shock absorbers at the national level are insufficient in case of a major financial and economic crisis. Indeed, the scale of the shock after the 2008 financial crisis was unprecedented in a number of countries and it far exceeded their national shock absorption capacity. The euro area had no mechanisms to provide financial support for countries in difficulty, ensure efficient risk sharing and prevent cross-border contagion; notably, there were no area-level institutions to prevent fiscal sustainability from being jeopardised by severe problems in their domestic banking systems.

I will approach the question from the point of view of central banks and ask: what influenced their ability to raise market awareness with respect to building vulnerabilities within the financial system? And can we rely on the ESRB to repair this problem in the future? The information at the disposal of central banks and other bodies with financial stability competencies enabled them to point to growing risks and vulnerabilities, but it did not allow a deeper understanding of the interconnections in the financial system and of the potential magnitude of the detected risks. As a result, the discussion of the risks in their public communications or publications tended to be mostly of a qualitative nature, and generally did not involve a clear risk prioritisation exercise, and therefore had a potentially smaller impact on market behaviour. Another important element was that risk assessments were generally not made with the specific aim of suggesting appropriate remedial policy actions in terms of prudential policies or regulation. Recommendations, mostly formulated in broad terms, tended to target market participants’ behaviour (e.g. proposing mitigating actions), but they were more muted regarding policy measures that could be taken in the prudential and regulatory area. One reason for this is, again, the information base. The formulation of concrete policy recommendations (e.g. with respect to capital buffers or funding-related issues) would need to be backed by rigorous quantitative assessments, for which publicly available information is generally not sufficient.