##s the pressure on the fiscal policies of the countries concerned. 4 effective fiscal rules for the euro area ladies and gentlemen, “ the union of europe cannot be based on goodwill alone. rules are needed. ” [ 20 ] those were the words of jean monnet, one of the founding fathers of the european union, back in 1952. in the euro area, these necessary rules include the european fiscal rules. credible fiscal rules are an anchor of confidence in the capital markets. they also strengthen the resilience of government finances to crises. it is clear that a stable monetary union depends on all member states having sound government finances. this then allows the single monetary policy to focus on safeguarding price stability. that is why effective fiscal rules are so important, especially in the euro area. they need to be conducive to sound government finances. on paper, the rules already in place are fairly well suited to achieving this objective. in practice, however, they have failed to have the desired effect : non - compliance with the debt and deficit ceilings has been a far too common occurrence. the medium - term budgetary objective ( mto ) of a structural budgetary position that is close to balance has also not been pursued decisively enough. as a result, the rules have been unable to reliably safeguard sound government finances. it is time, then, for reform. and, of course, there has also been intense debate for some time now about how to improve the rules. the bundesbank has drawn up some proposals on that front. two aspects are key in avoiding problems arising from the short - termism of fiscal policy decisions. first, we need to set quantitative limits as crash barriers. these limits need to be sufficiently ambitious. in other words, complying with them should result in sound government finances. this also involves a reliable reduction of high debt ratios. the quantitative requirements set out under existing rules are entirely suitable in this regard. focus should be on the mto of a structural budgetary position that is close to balance. it is also important that member states not having reached their mto converge towards it at an annual pace of 0. 5 % of gdp ( gross domestic product ). countries can meet this requirement without having to consolidate excessively. adopting this approach, high debt ratios will fall quickly enough. second, the member states need to follow the path delineated by the crash barriers. this is where the existing fiscal framework has some major flaws. the manual on implementing

in good times and in bad. 2. crisis country in the euro area before i move on to talk about the future regulatory framework of the euro area, i would first like to quote the head of state of a crisis country in the euro area : “ our country is facing gigantic challenges. our future and that of our children are at stake. millions of people are unemployed ; many already have been for years. the ( federal and state ) budgets... are in an unprecedented critical condition. ” have you got any idea who that head of state might be? the spanish king, perhaps, or the president of greece or spain? bis central bankers ’ speeches no, it was in fact germany ’ s federal president. or, to be more specific, it was federal president horst kohler in his televised address on 21 july 2005, in which he announced early elections in germany. seen from today ’ s perspective, it might appear absurd to categorise germany as a “ crisis country ”. but a decade ago, this assessment was certainly not out of the ordinary. the economist magazine ran an article on germany in 1999 under the heading “ the sick man of the euro ”. the article made the following point : “... the biggest economic problem for europe today is how to revive the german economy ”. and the situation was to worsen still further in the early years of the new millenium. for many years, germany recorded some of the worst growth rates in the euro area. unemployment climbed to nearly five million in 2005. it was only later that the economy emerged from its malaise, and it did so with a vengeance. the improvement in germany ’ s labour market – which was also dubbed “ the german miracle ” – was anything but a wondrous occurrence. in fact, it was the outcome of shrewd entrepreneurial decisions, moderate wage policy, greater flexibility in pay policy conditions, and not least fundamental labour market and social reform. you don ’ t need me to tell you that the title of “ sick man of europe ” is an award which often changes hands. other countries are currently the reigning champions in this discipline. germany, meanwhile, is seen as an economic powerhouse at the heart of the euro area, making it one of the cornerstones of efforts to rescue the euro. and this solidarity is not entirely a selfless act – after all, germany has a vested interest in preserving the long - term stability of the euro area. 3. press ahead with