peter praet : heterogeneity in a monetary union : what have we learned? speech by peter praet, member of the executive board of the ecb, at the 14th ecb and its watchers conference, frankfurt am main, 15 june 2012. * * * i would like to thank maarten dossche and arthur saint - guilhem for their contribution to the preparation of this speech. it is a great pleasure to be speaking here today at what has, over the years, become a prime opportunity for the european central bank to exchange views with ecb watchers on the challenges faced by monetary policy in the euro area. my remarks today will focus on the question of how imbalances in terms of competitiveness and private and public sector debt have gradually led to a worrying degree of heterogeneity in the euro area. i will also highlight the effects of the ecb ’ s liquidity - providing operations, arguing that these contribute to more homogeneous financial conditions across the euro area and allow a smoother adjustment process during the transitional period needed in order to reabsorb accumulated imbalances. i will, however, also argue that these operations can only be regarded as temporary support, as the underlying structural problems and weaknesses require a truly structural response completing the overall architecture of emu. when the euro was first introduced, many critics claimed that emu would not work because euro area countries ’ business cycles and economic structures were not sufficiently similar. but does economic integration really need to imply economic uniformity? i do not think so. this can clearly be seen in the united states. regional economies are hit by different economic shocks and perform differently owing to their differing economic structures, even over extended periods. at the same time, institutional safeguards are required in order to ensure that heterogeneous developments do not become self - reinforcing and pose a threat to overall macroeconomic stability. here in the euro area, we have to acknowledge that economic conditions have, today, become increasingly heterogeneous. but let me state very clearly up front that this does not imply that a common currency cannot succeed in the euro area. to my mind, this means that we need to address the institutional shortcomings and weaknesses of emu in order to allow the euro area to cope with heterogeneous economic developments and large asymmetric shocks, as is the case in the united states. there, too, economic and monetary union did not occur

, thereby reducing the need to take sudden and abrupt measures in more stressed situations. in this context, we are focusing on making ccps fully resilient by ensuring they are rigorously applying the pfmi, and have adopted appropriate arrangements for recovery planning in line with the guidance issued by cpmi - iosco in 2014. in this regard, cpmi - iosco will publish this summer two reports that assess the way international requirements are being implemented, drawing on surveys carried out with a significant number of ccps worldwide. additional guidance will be proposed in some areas, such as on stress testing. in other areas, such as recovery planning, we will ensure the existing guidance is properly and fully implemented. 4 this work is fully consistent with the forthcoming guidance by the financial stability board ( fsb ) on ccp resolution. the third area where the forthcoming reports will propose further guidance is in the identification and mitigation of potential procyclical behaviour. building on the requirements for margining and haircut - setting practices in the pfmi, we will now go further by requiring ccps to take a holistic approach to addressing the issue within their risk management frameworks. the guidance will also point out that a ccp is expected to measure procyclicality by using quantitative metrics, and to include considerations related to procyclicality in its model validation process. one open question is whether we should raise the bar even further by establishing minimum, binding margin floors, as is now the case for non - centrally cleared securities financing transactions. 5 i trust our panellists will share their insights on this issue. as a fourth step, i believe it would be helpful to enhance our capacity to identify and address financial vulnerabilities in ccps at an early stage by complementing ccp in - house stress testing with a framework for supervisory ccp stress testing that can be conducted across jurisdictions. supervisory stress testing can be a key building block of the macroprudential framework for ccps if it accounts for the propagation of risk across ccps as well as the spillover to, and spillback from, their clearing members. the recent european union - wide stress test led by the european securities and markets authority ( esma ) is a promising first see also cœure, b., interview with risk magazine, 19 may 2016. see financial stability board, “ strengthening oversight and regulation of shadow banking - regulatory framework for haircuts on non - centrally cleared securities financing