specific national problems can only be dealt with through decisions taken jointly, with a euro area perspective. in concrete terms, the problems currently affecting greece, which accounts for 2 % of euro area gdp, are influencing the whole of the area and need to be resolved through tough decisions, not only in athens but also in brussels. bis central bankers ’ speeches the fact is, the people of the different member states have not fully understood that we already have a political union. furthermore, the institutional framework does not provide a decision - making process that is fully compatible with such a political union. let me elaborate. a starting point is the limited awareness of the euro ’ s political dimension. that dimension results from the interconnectedness of the financial markets and the transmission of real, monetary and financial impulses within the area. as a result, governments and citizens throughout the monetary union should not only be concerned about what happens in their respective countries, but also in the other countries, because the latter can have a direct impact on their lives. in other words, it ’ s not sufficient for each member of the union to keep its own house in order, so that its underlying economic, financial and budgetary conditions are consistent with a sustainable membership of the euro area. the others have to do the same. there must thus be a mechanism of mutual monitoring of economic development and policies which ensures that all members comply with the requirements. this demands active participation by the different governments in the supervision of each others ’ policies. this has however not been the case in practice. governments have a mandate from their respective national electorates mainly to take policy decisions for their own countries. there is limited awareness in the domestic political arena that governments are also responsible for monitoring the other members of the euro area, in particular in respect of the stability and growth pact ( sgp ) and ensuring that they abide by it. in concrete terms, if a country records a budget deficit which is found to be excessive in the sense of the sgp, it is certainly that country ’ s responsibility to correct it promptly. however, it is also the responsibility of the other countries, within the procedures established under the sgp ( which also foresee an initiator role for the commission ) to ensure that the correction is fully and vigorously implemented. in other words, if a country does not comply, it should be pressured by the others. and if the others do not do this, they also become responsible for such non - compliance. this was the political

means that the euro area ’ s institutional model has to be adapted to the fact that monetary union is a political union. like all innovations, a process of steady adjustment and refinement is needed in order to create the finished product. the way ahead is not necessarily to imitate other forms of political union – such as the united states ’ fiscal federation. europe ’ s undertaking has no precedent. it demands original thinking, as much as, if not more than, that of america ’ s founding fathers in their times. it certainly also demands their courage and leadership. thank you for your attention. bis central bankers ’ speeches