the crisis has exacerbated this trend. at the same time, total factor productivity, which forms the basis of long - term growth, has also been disappointing. 4 if this trend continues over the long term, the euro area will not generate enough wealth to sustain the standard of living of its citizens and to ensure the sustainability of its social model, which is a defining feature of its identity. we sometimes ask ourselves how to keep the reform momentum going without the pressure of the financial crisis. 5 we would like to believe that what has been achieved since 2010 to strengthen emu is enough to make it strong and sustainable and we can therefore claim “ mission accomplished ”. but the challenges i have just outlined provide enough of an answer. what has been achieved so far is not enough. the euro area is not in a financial crisis anymore, but it must still contend with high debt, low growth and unacceptably high unemployment. these are reason enough to remain alert and continue acting. stability – a precondition for growth for companies to invest, for firms to hire, for households to consume, a stable economic environment is tantamount. if uncertainty reigns, economic activity suffers. in my view, there are three relevant dimensions of economic stability : price stability, financial stability and macroeconomic stability, including the health of public finances. in all these areas, we have made substantial progress in recent years. during the crisis, the ecb has taken all appropriate measures to ensure that price stability provided an anchor in an uncertain and volatile economic environment. consistent with this principle, our recent decisions have aimed at addressing the risk of too long a period of low inflation and at ensuring that inflation expectations remain firmly anchored. as for financial stability, the crisis has shown us how the functioning of an economy becomes impaired without a well - functioning, robust financial system. this requires striking the right balance between insuring against crises, curbing risk - taking behaviour and mitigating moral hazard with a strong incentive framework. the establishment of the european stability mechanism and the launch of banking union, with its single supervisory mechanism and single resolution mechanism, have been milestones in this respect. the stabilisation and ongoing repair of the greek banking system is another example. as a third dimension, the crisis has shown us the kind of existential threat to monetary union that can be brought about by the build - up of excessive imbalances, i. e. by the lack of fiscal and macroeconomic stability. the lesson drawn

from this existential threat was that there was a need to reform economic governance. we should be very careful now not to roll back this achievement, in particular in the fiscal domain. new growth will not be generated by new debt. on the contrary : sound fiscal policies are essential for growing out of debt. therefore, the existing rules should be applied, and they should not be stretched to a point where they would lose their credibility. there is built - in flexibility in the stability and growth pact to account for the cost of major structural reforms – but it cannot be based on empty promises. the sequencing should be clear. first, reforms need to be adopted and implemented. then, euro area gdp is expected to recover at a pace of 1 % in 2014 and 1. 7 % in 2015 according to the latest ecb staff projections. total investment in the euro area has shrunk by almost 20 % since the peak in economic activity in 2008. in addition, total factor productivity has also been disappointing in the euro area since 2000 : it grew by 0. 45 % annually from 2000 to 2007 before receding by 0. 47 % annually between 2007 and 2012 ( source : ameco database, european commission ). see barroso, j. m., “ remarks by president barroso on the country specific recommendations 2014 ”, speech given in brussels on 2 june 2014. bis central bankers ’ speeches the cost of such a reform, independently assessed, could be taken into account under the stability and growth pact, with due attention to the limited fiscal space provided by the high debt levels. economic stability is a necessary condition for growth, but is not sufficient alone. for our economies to grow out of high debt and unemployment, and thereby ensure social stability, we need to do more. racing to the top : “ convergence process 2. 0 ” the challenges i outlined a minute ago call for an answer that goes beyond the necessary application of the existing rules of emu. an answer that not only fosters stability and confidence today, but also in the future. an answer that gives emu the institutional shape it needs to be a successful project in the long run. this answer could in my view take the form of what i call “ convergence process 2. 0 ”, which should have an agreed timeline and milestones. to run the political triathlon of emu and perform well in all three disciplines, there needs to be a convergence of economic policies and structures. moreover, joint action is of the essence