risk premia built into real interest rates, which, in turn, will stimulate productive investment. another benefit is that by facilitating the development of deep and integrated capital markets, the single currency should further reduce long - term rates via the elimination of an illiquidity premium. in addition, a wider and deeper capital market in the euro area will improve intermediation between savers and investors. ensuring the benefits : stability - oriented policies it should be emphasised, however, that the true benefits of emu derive from the fact that it is a unique opportunity to shape a macroeconomic environment conducive to stability, growth and employment, and to foster structural change which is needed to maintain or restore medium to longterm dynamism in the european economies. it will be clear that this is not an easy process and monetary policy alone cannot achieve this. the full benefits of the single currency will come only if there is appropriate support from other stability - oriented policies, especially fiscal and labour market policies, and if structural reforms are carried out in these areas. thus, price stability is a necessary, but not a sufficient condition for grasping all the opportunities of emu. in this regard, it is of the utmost importance that the governments of the eu member states continue to implement sound and stability - oriented fiscal policies, by which i mean policies aiming at the medium - term objective of a budgetary position close to balance or in surplus. as you will know, this condition is stipulated by the stability and growth pact, which ensures the lasting compliance of fiscal policies with the requirement of budgetary prudence. from the perspective of a central banker, a prime reason for the establishment of the pact was that a lack of fiscal discipline would negatively affect the ability of the eurosystem to achieve its primary objective to maintain price stability. in this sense, the stability and growth pact is one of the most important safeguards that will ensure that price and fiscal stability remains the cornerstone of emu. therefore, it should be clear that i regard it as crucial for governments to make further structural improvements to their fiscal positions, as this would allow them to regain sufficient flexibility in their budgets and, most importantly, could effectively contribute to supporting stability and growth in the euro area. in this regard, i should like to note that only moderate fiscal consolidation is currently envisaged for the medium term. a number of national stability programmes only aim to attain the necessary flexibility at a relatively late date. it is important that we see

sabine lautenschlager : the european banking sector – growing together and growing apart speech by ms sabine lautenschlager, member of the executive board of the european central bank and vice - chair of the supervisory board of the single supervisory mechanism, at the lse german symposium, london, 2 march 2017. * * * two major events provide the frame for my speech today. both of them took place in june – one in 2012, the other in 2016. one of them took place in brussels, the other here in the united kingdom. one of them made europe grow together ; the other made europe grow apart. on 28 june 2012 in brussels, the leaders of the eu decided to take banking supervision to the european level and explore the idea of a fully fledged banking union. they took a decisive step towards a more united europe. on 23 june 2016, the people of this country voted to leave the european union. they took a decisive step away from a united europe. both events – while very different in nature – will fundamentally change europe. from the perspective of banks and their supervisors, both events have had and will have a huge impact. let us take a closer look. growing together – european banking supervision in june 2012, the euro area was a bad place to be – if you were an investor, a bank or a country that had lost the trust of the markets. on 1 june that year, the financial times wrote “ spain suffers €100 billion exodus ”. in the days thereafter, its front - page stories focused on ailing portuguese and spanish banks. in mid - june, its headline was “ fears rise over eu handling of debt crisis ”. by then the markets had driven the bond yields of some euro area countries to new heights. in other words, if the governments of those countries wanted to sell bonds to finance their debt they would have to pay much more. the media started speculating about a break - up of the euro area, as did some politicians. two weeks later though, something had obviously changed. on the last day of june, the financial times, on its front page, said “ markets rebound following eu deal ”. what had happened? what had happened was that an eu summit had taken place in brussels. there, the leaders of the eu agreed on a package of measures to stabilise the euro area. they decided on a €120 billion pact for growth ; they decided that the rescue funds, the european financial stability facility and the european