balances have significantly improved. crucially, the public debt - togdp ratio has started to decrease at euro area level. moreover, programme countries have rebalanced their current accounts, not only via demand compression but increasingly through genuine gains in competitiveness. to be sure, we cannot afford to be complacent. debt levels and unemployment are high and unevenly distributed, and the nascent recovery remains weak and uneven. we also need to restore trust in the banking sector, which is key to improving lending conditions to the real economy. in this regard, the comprehensive assessment of euro area banks will be crucial. • moreover, with the new governance framework the member states have taken key steps towards internalising economic and financial spillovers within emu. this has entailed a shift of the balance of competences upwards : the central level has been substantially strengthened to make the euro area more stable and resilient. fully enforcing the new rules of the game will however be the crucial test. at this stage, the implementation of the new macroeconomic framework has been somewhat disappointing in non - programme countries, notably regarding country - specific recommendations. it is more satisfactory on the fiscal side, but it will be essential that fiscal discipline is also fully enforced in good times, so that countries have enough fiscal space when the next crisis comes. the credibility of the new governance framework crucially hinges on the enforcement of our commitments, today and tomorrow. to this end, we need to improve effectiveness and legitimacy within the euro area. as i mentioned before, while economic policy - making is increasingly shared between the european and the national level, each level should be in a position to deliver on its own mandate. and citizens should be able to identify who is responsible for what. only with a more efficient and legitimate decision - making will we be able to properly enforce the governance framework ; only then will emu be genuinely “ fit for purpose ”. this brings me to the political dimension of the “ fitness test ”. looking beyond the crisis : a broader political perspective on euro area governance the four presidents ’ report identified “ political union ” as one of the four building blocks of a genuine emu. it put forward a number of proposals. some of the momentum behind the discussions on these proposals has been lost. it is not up to the ecb to promote them. but we would welcome policy - makers restarting the discussion and not shying away from ambitious proposals. i see several possible options to enhance effectiveness and

by individual countries can affect the entire currency union ; and why national economic policies need to be seen as “ a matter of common concern ”. in other words, the balance of competences between the national and the european level was not commensurate with the requirements of a currency union. at the same time, i believe that replicating the model of fully - fledged federations in the euro area would not pass the “ fitness test ” either, mainly for political reasons. at this stage, a full integration of economic policies is neither desirable nor feasible. the wide range of preferences among euro area member states means that progress on economic and fiscal union can only be gradual. there will be no sudden leap towards a fully - fledged political union. and you will never convince the people of europe that further sovereignty sharing is needed without first showing them in a convincing way that europe delivers jobs and stability. how can we steer clear of the minimalist and maximalist scenarios and be pragmatic in making the governance framework “ fit for purpose ”? bis central bankers ’ speeches in my view, the european level should be allowed to intervene in national policies – or even be granted new competences – only to the extent that is necessary to account for interdependencies ( economists would say : to internalise cross - border spillovers ). equally, national economic policies should take into account the existence of potential spillovers to other members of the currency union. the approach followed so far implies that the competence for economic policy - making is increasingly being shared between the european and the national level. this brings challenges of its own, both in terms of the effectiveness and legitimacy of decision - making. despite the inter - linkages, each level should be in a position to deliver on its own mandate. correspondingly, citizens should be able to identify who is responsible for what. here i believe that emu still has some way to go before passing the “ fitness test ”. let me now review in turn the economic and political dimensions of the “ fitness test ” of euro area governance. crisis resolution and crisis prevention during the crisis, the ecb has fully played its role in line with its mandate. the ecb was faced with interrelated key challenges, namely extreme risk aversion and non - linear dynamics, deleveraging, fragmentation and a weak economic environment. like other central banks around the globe, we have taken decisive measures to support medium - term price stability and improve the transmission of our monetary policy.