##act the efforts of monetary policy to bring inflation back to levels closer to 2 %. conclusion heterogeneity is part of the euro area ’ s dna. it is a source of strength, provided our institutions and markets have the instruments and ability to effectively absorb idiosyncratic shocks. heterogeneous currency unions need a sufficient degree of private and public risk - sharing, and they need economic policymakers doing their part to preserve and nurture cohesion and convergence. not doing so means that too much of the burden of macroeconomic stabilisation falls on the ecb, thereby challenging the achievement of its medium - term price stability objective. thank you. 1 see, for example, ecb ( 2005 ), “ monetary policy and inflation differentials in a heterogeneous currency area ”, monthly bulletin, may. 2 see cœure, b. ( 2016 ), “ the ecb ’ s operational framework in post - crisis times ”, speech at the federal reserve bank of kansas city ’ s 40th economic policy symposium, jackson hole, 27 august. 3 see, for example, trichet, j. - c. ( 2007 ), “ the euro area and its monetary policy ”, president ’ s address at the conference “ the ecb and its watchers ix ”, frankfurt am main, 7 september ; and trichet, j. - c. ( 2011 ), “ two continents compared ”, keynote address at the “ ecb and its watchers xiii ” conference, frankfurt am main, 10 june. 4 see cimadomo, j. et al. ( 2018 ), “ risk sharing in the euro area ”, economic bulletin, issue 3, ecb. 5 also note that the credit channel includes both private and public borrowing, meaning the contribution of private risk - sharing is likely to have been even more negative if one accounts for the establishment of the european financial stability facility / european stability mechanism in 2010. research shows that these institutions made a substantial contribution to the absorption of country - specific shocks. see, for example : cimadomo, j., furtuna, o. and giuliodori, m. ( 2018 ), “ private and public risk sharing in the euro area ”, working paper series, no 2148, ecb, may ; and milano, v. ( 2017 ), “ risk sharing in the euro zone : the role of european institutions ”, celeg working paper series, no 1701, luis

- starting the capital markets union. financial markets that can absorb shocks efficiently reduce the need for macroeconomic stabilisation and thereby free up costly political capital. structural policies to enhance resilience and feed convergence the second aspect of pre - crisis thinking concerned the role other policy domains should play in supporting the single monetary policy. i will focus here on the structural side and turn to fiscal policy in a minute. although pre - crisis policy advice strongly focused on reducing nominal and real rigidities in product and labour markets, today there are still significant differences across countries in the response to common euro area - wide shocks. my next slide shows two ways of looking at this. 6 / 14 bis central bankers'speeches on the left - hand side you can see ecb research on the extent to which output in each country responds to a common area - wide shock. clearly, there are significant differences, even among countries of broadly comparable size. on the right - hand side you can see eurosystem estimates of the slope of the phillips curve. 8 it shows a high degree of heterogeneity across euro area countries for the sensitivity of core inflation to economic slack. in other words, country - specific factors of inflation remain considerable, for example the degree of wage negotiation centralisation. these factors are also related to national institutions. the upshot is that, in this environment, monetary policy is more difficult to calibrate. different transmission mechanisms propagate the same shock to different degrees and with lags that may vary across countries. minimising these differences in transmission does not require all countries to adopt the same economic structures. 9 what matters is for countries to have institutions that deliver the right outcomes, both individually and jointly. our system of economic coordination, the european semester, still falls short of achieving this objective. 10 and as a consequence, it still falls short of supporting adequately the single monetary policy. strengthening domestic institutions is not only about improving shock absorption capabilities. it is also about cohesion and sowing the seeds for renewed convergence. you can see this on my next slide. 7 / 14 bis central bankers'speeches the more benign pre - crisis view of heterogeneity reflected the fact that the direction of travel was at least similar among euro area countries, and not too different from, say, the united states. as you can see from the chart, the longer we wait to improve the quality of the institutions that underpin domestic growth and living standards, the larger the gap will