##e both public and private investment in order to take advantage of the exceptional financing conditions created by our monetary policy. to do so, we need to put the juncker plan back on the table. the juncker plan has yielded results, but they are insufficient. to support the revival of this plan, i have proposed the creation of a true european “ financing and investment union ”. to achieve this, we must combine the juncker plan, the european commission ’ s plan for a capital markets union, and the banking union. the aim is to create synergies in order to achieve three ambitious goals : better channel euro area household savings to productive investment and equity ; better pool risks across countries ; and thus better finance innovation and the networks our economy needs. this is the direction we should take now. lastly, we need to make progress towards an economic governance of the euro area ; in france, we spoke of “ economic government ”. this progress is essential, regardless of whether or not the united kingdom remains in the european union ; naturally, i would like it to stay in. this is not a purely institutional question ; it is not about “ more brussels ” but very concretely about more growth and employment. indeed, economists estimate that the current lack of coordination of national economic policies has cost europeans between two and five percentage points of gdp since 2011. naturally, contrary to the case of monetary policy, the aim is not to fully integrate all of our economic policies at the european level, but to achieve a “ full coordination ” of fiscal and structural policies. for this, we need to have shared economic goals, and a true “ collective strategy ” for the euro area, in which each country has a role to play to improve everyone ’ s situation. this requires trust, in particular between france and germany, based on a clear pact : national reforms and ( not or ) european coordination. this full coordination also rests on the setting up of a strong and legitimate european institution : a euro area finance minister backed by a european treasury system and subject to greater democratic accountability. this finance minister would be charged with defining the collective strategy, supervising its decentralised implementation by member states and managing crisis management tools. going forward, he / she could also be in charge of a common budget. for the euro area and for the confidence of its citizens, 2016 – 2017 is the crucial time to act : i had the opportunity to discuss these proposals in greater depth a few days ago, and i hope that our exchange will

resulting from the three basic equations in which the money stock does not appear – in particular from the gap between the natural and actual rates of interest. for this result to go through, the money stock cannot per se be among the variables that determine the equilibrium of the remaining – the nonmonetary – part of the model. this means that the separation result is not possible if there is a real balance effect operating in the goods markets. or to put the result differently, the separation feature is consistent with an inside money monetary system, while it may well not be consistent with an outside money structure. it is thus consistent with the suggestion by harry johnson mentioned above, that monetary analysis might better be carried out primarily in an inside - money than an outsidemoney model. this neo - wicksellian result is somewhat surprising. it provides justification for the behavior of those central banks that think and talk of monetary policy purely in terms of the policy interest rate and other financial return variables, but not of the money stock. however, we need to remind ourselves that it is built on an assumption that the money stock per se does not appear in the basic three - equation model – and that is an assumption, not a theorem. 13 4. the goals of policy. when he turns to optimal policy, woodford starts chapter 6 by asking what the goals of monetary policy should be. he states that there is a fair amount of consensus in the literature that a desirable monetary policy is one that achieves a low expected value of an objective function that includes inflation and bis central bankers ’ speeches “ some measure of output relative to potential. ” he then goes on to point out the many questions such a formulation leaves unanswered, including whether to target the price level or the inflation rate, should greater priority be given to reducing the variability of unforecastable inflation, should one seek to stabilize output deviations from a smooth trend or from the short - run aggregate supply curve, and so forth? and then the surprising comment ( p. 382 ) the aim of the present chapter is to show how economic analysis can be brought to bear upon these questions. this sounds simple but it is not, for the explanation that woodford provides is that we have seen that models founded on individual optimization can be constructed that, thanks to the presence of nominal rigidities, allow for realistic effects of monetary policy upon real variables. here we shall see those same nominal rigidities provide welfare - economic justification for central bankers ’