ahead, the key question is what can be done to prevent the emergence of imbalances in the future. after the current crisis experience, the markets can be expected to better assess the differences in the risks to monetary union members and to increase both the spreads and the cost of capital when those risks start to rise. market discipline as a result of proper credit risk management can be an important mechanism for preventing the emergence of imbalances. policy measures are nevertheless required and are of the same nature of those that i have already mentioned with respect to the correction of the existing imbalances, in particular those with regard to fiscal policy and unit labour costs. after all, viewed from a macroeconomic perspective, the successful participation in a monetary union implies an anticyclical fiscal policy and an appropriate evolution of wage costs in line with the development of relative productivity. i believe that two other policy points also deserve to be mentioned. first, i think that macro - prudential policy has an important role to play in preventing and / or mitigating the effects of imbalances in the financial system. the whole panoply of well - known analytical tools has to be used : sets of financial indicators, early - warning systems, stress tests, contagion models, macro - models that include the proper feedback between the financial sector and the real economy. careful attention in this process must be paid to leverage indicators of the different types of economic agents : households, firms, banks and the state. ensuring financial stability implies avoiding excessive debt and credit growth. the idea of macro - prudential policy is not new. rather, what has changed is the institutional framework in which these policies can be set in place. in europe, the establishment of the esrb will provide the mechanism for identifying imbalances that endanger financial stability and create systemic risks at the level of the european union. the esrb membership reflects the composition of the 27 members of the general council of the ecb and, although limited to issuing warnings and recommendations, the participation in the board of one representative of the commission and the three chairs of the future european supervisory authorities ensures that proper action will follow the decisions of the esrb. it is, in fact, the whole european system of financial supervision that will be responsible for guaranteeing that the functioning of both the financial sector and asset markets is not impaired to an extent that creates fundamental risks to the financing of the economy. the second point with respect to policies appropriate for avoiding future im

extent, price adjustments, this restoration of competitiveness could be a very protracted and painful process. this implies that policy has a crucial role to play in facilitating and speeding up the adjustment process. in particular, policy action is needed in four areas : first, measures should be taken to increase wage flexibility and the adjustment of wages to appropriate levels. this could be achieved through measures to improve the functioning of labour markets with a view to enhancing wage flexibility and facilitating the transfer of workers from the non - traded to the traded sectors. in fact, we have already seen wagesetting developments in some european countries that many observers would have believed impossible just a few years ago. second, the adoption of measures to increase productivity growth is necessary to facilitate adjustment. higher productivity growth will allow the affected countries to improve their gains in competitiveness for a given level of nominal wage growth. this benefit comes on top of the improvement in living standards that increases in productivity generate. achieving higher productivity growth requires comprehensive structural reforms aimed, in particular, at sheltered sectors of the economy where there is insufficient competition. third, convincing fiscal consolidation to redress the fiscal imbalances is essential. given the impairment of the credibility of fiscal policy in many countries, postponing adjustment is simply no longer an option. markets need to be convinced right now. this message is now well understood and, in recent months, we have seen sizeable fiscal adjustments in a number of euro area countries. this is a very encouraging development, but it is essential to maintain the momentum and ensure that the new targets are met in the years ahead. fourth, repairing the balance sheets of banks and making banks more resilient are crucial prerequisites for the resumption of growth and for financing the reallocation of resources from the non - traded to the traded sectors. many policy initiatives have already been taken in this respect, ranging from the establishment of “ bad banks ” to injections of capital and government guarantees ’ for bank debt. of course, the liquidity policy of the eurosystem has played a crucial role in supporting the financing of the overall economy since august 2007. at the same time, viewed from a longer - term perspective, effective regulation has a key role to play in strengthening the financial system. currently envisaged changes in the regulation of banks aim at making banks better internalise the cost of their risk - taking and impose heavier capital charges on their riskier positions. this will reduce the danger of excessive credit flows such as