be broadened in contractual procedures, already put forward in the 2013 franco - german contribution on emu, or in chancellor merkel ’ s 2 “ binding reform contracts ” proposal, and including positive incentives. one of them would be the access to a euro area ” convergence fund ”, through which member states could benefit from common funding. in addition, conditioning the participation in economic governance on compliant implementation could provide strong incentives. third, the finance minister would be responsible for implementing centralized crisis management. a finance minister for the euro area would naturally be in charge of overseeing european stability mechanism operations. last, while moving towards further integration, the minister could be given the authority for managing a euro area convergence fund, evolving towards a euro budget. we are touching here on the issue of a common fiscal capacity, promoted recently by pier carlo padoan 3. as successfully done in the past, it could be built in three stages. in the first stage, angela merkel ’ s first parliamentary speech of the third term, 18th december 2013. pier carlo padoan, a shared european policy strategy for growth, jobs, and stability, february 2016. bis central bankers ’ speeches member states would be free to join, and the convergence fund would be allocated to financing common goods such as european infrastructure investment or refugee settlement. in a second stage, this budget could become a stabilisation instrument, centralising a welldefined set of policy instruments, such as a european layer of unemployment insurance. the third and final stage of fiscal integration would only be achieved if agreement can be found both on financing ( direct revenue - raising capacity and common debt issuance ) and on the desirable level of business cycle synchronization. this perspective would be a powerful incentive for national discipline and commitment as shown during the march to the euro. how to set up a legitimate institution with a genuine administrative capacity? further integration and democratic accountability should progress together, as discussed in my recent article with jens weidmann. we need to enable the european economic administration to be more efficient, while establishing strong enough political legitimacy to ensure balance between liability and control. these institutional changes obviously require a new treaty. first, we need a legitimacy - enhancing appointment process. the finance minister could thus be appointed for a five - year period by the european council acting by qualified majority on a proposal from the president of the eu commission. the new appointment would be subject to the formal approval of the european parliament, and the finance minister would be member of the

need to take part in this debate, while taking action will obviously be a decision for political leaders. this is also why our focus should be on the eurozone economic governance. we should not fear different speeds in europe. i am strongly in favor of the uk remaining within the eu ; yet, irrespective of the outcome of the british referendum, the eurozone can and should pursue further integration. the euro crisis has revealed how unprepared we were. the expected dynamics between peer pressure and market discipline did not work, as markets did not believe in the no - bailout principle, and as national authorities did not really accept peer pressure, nor the implementation of the rules. bis central bankers ’ speeches the absence of coordination has a genuine economic cost. it includes the cost of crises and assistance programmes, as well as the impact on growth due to uneven compliance with budgetary rules before the crisis and rigidity of the rules during the crisis. several studies point to a significant cost of non - coordination, in the order of 2 to 5 % of gdp since the crisis. to take the debate forward, three principled choices have to be made : first : making parallel progress on both domestic reforms and european coordination. this is the cornerstone of any french - german agreement : to be fair, the french call for germany to support coordination, and the german doubt about french reforms, have been and are still well - founded. this requires overcoming distrust between countries and putting both aspects under the same umbrella, namely a common institution. second, we must recognize that institutions with a mandate are superior to rules without institutions. to bolster policy consistency and coordination, we admittedly need simpler rules. but they should be supported by strong institutions with discretionary powers. mario draghi pointed out 1 the fundamental difference between a monetary policy institution and fiscal rules, which are exemplified by the track records of the ecb and sgp respectively. third, there is room for an intermediate level of integration, as shown in a simple but illustrative matrix. i would call it “ full coordination of national policies ”, a presently missing link between integration, as we have for monetary policy decision - making, and rule - based surveillance, such as is currently the case for national fiscal policies in europe and which is clearly lacking teeth. speech by mario draghi, president of the ecb, at sz finance day 2015, frankfurt am main, 16 march 2015. bis central bankers ’ speeches to be sure, the highest