were at the heart of the sovereign debt crisis. it would be unfair to only look at germany for this situation, as many serious policy mistakes were made in southern countries. first, several countries failed to implement the structural reforms that were needed to function smoothly in a monetary union. rigidities in product and labor markets contributed to severe losses of price competitiveness. second, several countries experienced booms in domestic demand on the back of unsustainable growth of credit and house prices. third, several countries failed to use the windfall of lower interest rates due to emu - membership for a lasting improvement of public finances. between the mid - nineties and the financial crisis, interest rate expenditure on public debt in the periphery decreased by 4. 5 % of gdp on average. only spain used this fully to reduce budget deficits. unfortunately, in the other countries, on average almost half of this percentage did not translate into lower deficits. these policy mistakes suggest that the burden of adjustment mainly lies in southern europe. but it would also be unfair to turn the crisis into a moral caricature between the virtuous and the profligate, between ants and grasshoppers. as jens mentioned in one of his recent speeches, several so - called core countries are not in great shape either. think of low bis central bankers ’ speeches competitiveness and high public debt in france. think of low productivity growth in the german service sector. and think of the painful correction of house prices here in the netherlands. this clearly illustrates that all emu member states need to carry out reforms to improve their economic growth potential. moreover, policymakers in all european countries made misjudgments regarding the functioning of emu. most didn ’ t see these flaws when we celebrated 10 years of emu, only months before the collapse of lehman brothers. at the time, we all failed to see how the growing importance of financial factors had fundamentally changed the monetary union. it wasn ’ t recognized that the euro area was experiencing asymmetric financial cycles rather than asymmetric business cycles. this is serious omission as recent research shows that these financial cycles are much larger and longer - lasting than normal business cycles. they created divergences that emu was not designed to deal with. in addition, we thought that the strong increase of financial integration after the introduction of the euro would enhance risksharing. but we didn ’ t realize that it also spurred contagion and pro - cyclical capital

flows. for example, the financing of southern credit booms also came from banks in france, germany and the netherlands. from this perspective, europeans are in this together, and can only get out together. situation has improved the good news is that the eurozone indeed seems to be emerging from the crisis, if slowly. the situation has improved significantly since the height of the crisis in the summer of 2012. at that time, financial fragmentation in the euro area reached alarming levels and several countries were suffering from a strong outflow of capital. financial markets probably responded too pessimistically at times, fuelled in part by fears of the break - up of the euro area. but less than two years later, markets have calmed down and the crisis entered a new phase. this change is not only due to the ecb ’ s long - term refinancing operations and its outright monetary transactions program, actions that will always to some extent remain controversial. after all, monetary policy cannot solve the problems of emu. it can only buy time that should be used effectively. no, the situation also improved because european policymakers took measures that seemed unthinkable until recently. and because they did so in a relatively short time span. this holds to individual countries in the first place. many vulnerable member states have reduced their current account deficits and improved their competitiveness. they have also made progress with reducing budget deficits and implementing structural reforms. countries like ireland and spain have therefore successfully ended their financial assistance program. but it also holds for the european level, where governance has been strengthened. european policymakers established common supervisory and resolution mechanisms for banks. this banking union will help to reduce the toxic feedback loops between banks and sovereigns. many countries have also introduced macro - prudential policies, with the ability to co - ordinate these at european level. these recent measures come on top of the enhanced stability and growth pact and the introduction of the macroeconomic imbalances procedure. challenge for the coming years one crucial challenge is to continue on this course, even now financial markets have calmed down. much remains to be done, and the calm will only be sustainable if vulnerabilities decrease further. for individual countries, this means more structural reforms. countries with a support program implemented reforms, but some of the larger founding fathers are lagging behind. moreover, reforms mainly focused on labour markets so far, while much less progress is made on product and service markets. the gains of