how europe would have absorbed the crisis with fifteen different currencies, fluctuating internal exchange rates, and, as a consequence, much higher volatility, uncertainty, risk premia and interest rates. this experiment speaks for itself. in addition, numerous studies have shown that economic cycles are becoming more and more synchronized across the euro countries. after a spike in 2009, the standard deviation between national growth rates inside the euro area has gone down to its lowest historical level ever. this convergence has eliminated one major asymmetry and is getting the eurozone closer to the canonical model of the optimum currency area. the last observable reaction is support. it shows up in comments from a majority of observers and investors, especially in emerging economies : they praise the euro ; they want it to succeed ; but they sometimes wonder about our collective ability, in current circumstances, to do what is necessary, to make the right decisions or make them at the right time and to set in place the proper framework for the future. these are the concerns i want to address now. bis central bankers ’ speeches where and how did it start? most euro area and eu countries entered the crisis with significantly deteriorated fiscal positions. we were very far away from the “ structural balance objective ” which was the basic pillar of our fiscal framework. so, all countries were severely hit, not so much by an increase in expenditures but essentially through a massive loss of revenues. the imf has shown that, in all advanced countries, including the us and uk, those losses account for around two third of the deterioration in fiscal positions which have been observed during the crisis. fiscal deterioration was compounded, in some countries, by the size of blanket guarantees given to the banking sector. those implicit liabilities only became apparent when difficulties materialized. as in the us and uk, fragilities in the banking sector stemmed from risks mostly taken in – or related to – the housing sector. let me note, in passing, that those problems unfortunately were not specific to the euro area. public debt jumped by around 30 % of gdp in uk and in us. structural deficits in those countries stand at similar or higher levels than those in most parts of the euro area. overall, the crisis has put into light major deficiencies in the implementation of fiscal discipline and, more generally, in the economic governance of the euro area. it is indeed demanding to operate a single currency with multiple fiscal and structural national policies. given the insufficient of market discipline,

christian noyer : the euro area – challenges and responses speech by mr christian noyer, governor of the bank of france and chairman of the board of directors of the bank for international settlements, at a breakfast for the economic club, new york, 18 april 2011. * * * it is a great pleasure to be here today. it is also a privilege to address such a distinguished audience. i would like to take this opportunity to present my assessment of the situation in the euro area, particularly with respect to the difficulties we meet on sovereign debt. three views on the sovereign crisis in europe broadly speaking, opinions and views expressed on the euro area by people outside the eurozone, can be divided into three categories : hostility for, at least very few people, skepticism and support. first, outright hostility. it is unfortunately true that, in some circles, there is a spontaneous and deeply ingrained opposition to european integration. since the euro is the most accomplished part of the integration project, it is only natural that it crystallizes those oppositions. somber predictions about the imminent demise of the euro came predominantly from those deeply anti – european commentators. while those views, like all opinions, should be treated with respect, there is no point in trying to refute arguments which, in great part, are irrational and mainly reflect wishful thinking. second, skepticism. it emanates mainly, but not only, from academic circles. prestigious and well respected economists have been pointing to the fact that the euro is not an optimum currency area. they also underlined that, absent sufficient labor mobility, there was a need for some form of fiscal federalism that current arrangements failed to fulfill by a large measure. those arguments have been made and discussed for some time and deserve careful consideration. obviously, recent turbulences and disruptions in the articulation of national fiscal policies have given them a new relevance. i will come back to this debate in a moment. at this stage, i will simply remind you of some responses that have been consistently formulated over the last decade. the benefits of the euro cannot be assessed exclusively through the lenses of the optimum currency theory. the euro has brought to more than 400 million european citizens unprecedented stability. price stability, obviously, with inflation averaging 1. 97 % over the last decade. and also, yes, financial stability. it is always useful to think of counterfactual when assessing a situation. looking beyond current fiscal turbulences, let us think, for instance,