, 2011 : – 6. 1 ; government gross debt : 1995 : 72. 5, 2007 : 66. 0, 2009 : 78. 7, 2011 : 88. 5 ]. moreover, some countries did not comply with their commitments under the stability and growth pact even in good times. h. badinger, 2007, “ has the eu ’ s single market programme fostered competition? testing for a decrease in mark - up ratios in eu industries ”, oxford bulletin of economics and statistics, 69 ( 4 ), pp. 497 – 519. see w. roeger, j. varga and j. in ’ t veld, 2008, “ structural reforms in the eu : a simulation - based analysis using the quest model with endogenous growth ”, european commission economic papers, no 351 ; and t. bayoumi, d. laxton, p. pesenti, 2004, “ benefits and spillovers of greater competition in europe : a macroeconomic assessment ”, european central bank working paper no 341. 3. the third challenge is posed by the lack of transparency and regulation in financial markets. in many respects, the recent crisis can be seen as the direct result of vulnerabilities and imbalances in the financial system. the risks stemming from financial innovations were compounded by insufficient risk management and adverse incentives. we have all seen the negative effects on economies around the globe. a key lesson is that systemic risks were largely misunderstood and thus underestimated. from a longer - term perspective, concrete efforts will be needed to address all three challenges and to sustain the recovery, rendering it solid, sustainable and long lasting. i will now turn to the remedies and policy actions needed to address these challenges. iv. addressing the challenges for the first challenge, improving real economic performance, there are at least three policy priorities. first, policies are needed which enhance competition and innovation to speed up restructuring and investment, thus creating new business opportunities. increased labour market flexibility, as well as investment in education and research, are required to create employment opportunities and enhance competitiveness. restructuring of the banking sector to establish solid business models, better risk management and increased transparency will be essential. second, there is a need to safeguard and strengthen the single market in europe. while the single market is at an advanced stage, there is still room for further progress. a clear example is the energy market, where greater integration would help to minimise costs and prices, improve energy security and

to be allocated to the most productive uses at the european level, in line with the single market objectives. by enhancing cross - border private risk - sharing and consumption smoothing through cross - border holdings of assets, cmu can reduce the need for public risksharing. developing capital markets would also alleviate the shortage of risk capital7 that hinders the growth of europe ’ s innovative start - ups and smes by increasing the presence of investors with high risk - bearing capacity. as in the case of depositors, issuers and investors should enjoy the same legal rights in capital market activities across the eu, irrespectively of their country of domicile. furthermore, brexit accentuates the need to develop and integrate the eu ’ s capital markets to prepare for the likelihood that the city of london will play a reduced role in the future. 8 in terms of legislation, the cmu agenda has already yielded some positive results, but a more ambitious long - term approach should be pursued. on insolvency frameworks, the commission has put forward a number of proposals9 which aim to enhance aspects, such as the efficiency of debt recovery procedures. in the realm of taxation, adopting the proposal on a common consolidated corporate tax base would help to reduce or remove the bias towards debt over equity in some member states, thereby facilitating the development of equity markets. the creation of a pan - european personal pension product, for instance, would help channel more savings into long - term investments through a portable, pan - european product. finally, fostering a deep and efficient cmu means reviewing the supervisory framework to align it with the cross - border nature of capital markets, enhance supervisory and regulatory convergence and remove possibilities for regulatory arbitrage, also crucial in the context of brexit. indeed, the non - bank financial sector may harbour leverage and liquidity risks, requiring additional efforts to address emerging vulnerabilities at the system level. first, the asset management sector is highly connected with other parts of the financial system through ownership links, common asset exposures and the provision of wholesale funding to banks. second, liquidity mismatches and leverage often build up slowly over time. in the euro area, we see that investment funds have been taking on higher credit risk and duration risk in the current market environment. and there are strong indications that liquidity risks are building up in the sector with the share of less - liquid assets in the sector growing continuously since the global financial crisis.