new architecture for the euro area is desirable to create sustained prosperity for all euro area countries, and especially for germany. the root of germany ’ s success is its deep integration into the european and world economies. to continue to prosper, germany needs to remain an anchor of a strong currency, at the centre of a zone of monetary stability and in a dynamic and competitive euro area economy. only a stronger economic and monetary union can provide this. yet this new architecture does not require a political union first. it is clear that monetary union does entail a higher degree of joint decision - making. but economic integration and political integration can develop in parallel. where necessary, sovereignty in selected economic policy fields can and should be pooled and democratic legitimation deepened. how far should this go? we do not need a centralisation of all economic policies. instead, we can answer this question pragmatically : by calmly asking ourselves which are the minimum requirements to complete economic and monetary union. and in doing so, we will find that all the necessary measures are firmly within our reach. for fiscal policies, we need true oversight over national budgets. the consequences of misguided fiscal policies in a monetary union are too severe to remain self - policed. for bis central bankers ’ speeches broader economic policies, we need to guarantee competitiveness. countries must be able to generate sustainable growth and high employment without excessive imbalances. the euro area is not a nation - state where persistent cross - regional subsidies have sufficient popular support. therefore, we cannot afford a situation where some regions run permanently large deficits vis - a - vis others. for financial policies, there need to be powers at the centre to limit excessive risk - taking by banks and regulatory capture by supervisors. this is the best way to protect euro area taxpayers. there also needs to be a framework for bank resolution that safeguards public finances, as we see in other federations. in the u. s., for example, on average about 90, mostly smaller, banks per year have been resolved since 2008 and this had no impact on the solvency of the sovereign. political union can, and shall, develop hand - in - hand with fiscal, economic and financial union. the sharing of powers and of accountability can move in parallel. we should not forget that 60 years of european integration have already created a significant degree of political union. decisions are made by an eu council filled by national ministers and by a directly elected european parliament. the challenge

##ommodative until well into the recovery. and the specific numbers that were selected as thresholds for a possible change in the federal funds rate target should confirm that the fomc expects to hold that target lower for longer than would be typical during a normal economic recovery. this improved guidance should help the public to accurately adjust their expectations for the federal funds rate in response to new financial and economic information, which should make policy more effective. 13 in addition, i hope that improved guidance will help to boost confidence in the empirical studies of the committee ’ s date - based forward guidance suggest that changes in that guidance generated an appreciable effect on longer - term yields. see, for example, swanson and williams ( 2012 ) and woodford ( 2012 ). see board of governors ( 2009a, 2009b ). see board of governors ( 2011a ). see board of governors ( 2012a ). see board of governors ( 2012a ). see board of governors ( 2012b ). the new guidance should serve as an automatic stabilizer in the face of shifts in the outlook. for example, weaker economic data, suggesting that the thresholds will be reached later than previously anticipated, should bis central bankers ’ speeches outlook and bolster households ’ unusually depressed expectations for income gains, which in turn will spur a faster recovery. a considerable body of research suggests that, in normal times, the evolution of the federal funds rate target can be reasonably well described by some variant of the widely known taylor rule. 14 rules of this type have been shown to work quite well as guidelines for policy under normal conditions, and they are familiar to market participants, helping them judge how short - term rates are likely to respond to changing economic conditions. the current situation, however, is abnormal in two important and related ways. first, in the aftermath of the financial crisis, there has been an unusually large and persistent shortfall in aggregate demand. second, use of the federal funds rate has been constrained by the effective lower bound so that monetary policy has been unable to provide as much accommodation as conventional policy rules suggest would be appropriate, given the weakness in aggregate demand. i ’ ve previously argued that, in such circumstances, optimal policy prescriptions for the federal funds rate ’ s path diverge notably from those of standard rules. 15 for example, david reifschneider and john williams have shown that when policy is constrained by the effective lower bound, policymakers can achieve superior economic outcomes by committing to