step up, this budget could become a stabilisation instrument, centralising a well - defined set of policy instruments, such as a european layer of unemployment insurance. the third and final stage of fiscal integration would only be achieved if agreement can be found both on financing ( direct revenue - raising capacity and common debt issuance ) and on the desirable level of business cycle synchronization. as access to this third stage would be linked to reduced risks, this perspective would be a powerful incentive for national discipline and commitment as shown during the march to the euro. c. how to set up a legitimate institution with a genuine administrative capacity? further integration and democratic accountability should progress together, as discussed in my recent article with jens weidmann. we need to enable the european economic administration to be more efficient, while establishing strong enough political legitimacy to ensure balance between liability and control. a european treasury headed by a euro area finance minister would have a chance of embodying such a delicate undertaking. these institutional changes obviously require a new treaty, notwithstanding the “ low hanging fruits ” we can and must pick up in the coming year. first, we need a legitimacy - enhancing appointment process. the finance minister could thus be appointed for a five - year period by the european council acting by qualified majority on a proposal from the president of the eu commission. the new appointment would be subject to the formal approval of the european parliament, and the finance minister would be member of the commission, as well as chair of the eurogroup. the minister would angela merkel ’ s first parliamentary speech of the third term, 18th december 2013. bis central bankers ’ speeches thereby have the legitimacy to represent internationally the euro area in economic and financial fora, alongside the president of the ecb. second, the euro area finance minister would need to be backed by a genuine treasury administration, which could include staff from the commission ’ s economic and financial directorate general, the esm, and the economic and financial committee secretariat. such a civil service would also benefit from the public advice of two independent bodies, the european fiscal board and the competitiveness council. last, if we succeed in implementing further integration, we will need stronger democratic control over euro area affairs. to this end, we will need to consider institutionalising a euro area format of the european parliament. relationships between euro area mps and national parliaments will also need to be enhanced, through an inter - institutional agreement, or by creating dedicated commissions. * * * to conclude,

uncoordinated we were. not only did this episode affect our credibility, it also revealed the economic costs of non - coordination in terms of prevention and management of crises, both at the national and collective level. at the national level, member states have been lacking the capacity to mitigate large shocks in the emu context. the non - binding nature of economic policy coordination, as set out in the lisbon strategy or the agenda 2020, is partly to blame. some member states also proved to be poorly committed to implementing domestic structural and fiscal reforms that would have created more policy space to address shocks. collectively, the expected dynamics between peer pressure and market discipline did not work, as markets did not believe in the no - bail - out principle, and as national authorities did not really accept peer pressure, nor the implementation of the rules. the absence of coordination has a genuine economic cost. several studies have estimated it for the ea. it includes a ) the cost of crises and assistance programmes, as well as b ) the impact on growth due to uneven compliance with budgetary rules before the crisis and rigidity of the rules during the crisis. let me mention a few numbers. banking and fiscal crises can be extremely costly : relative to the u. s. growth trajectory, the ea has fallen behind bis central bankers ’ speeches by 5 percent of gdp per capita since 2011. both the european commission 6 and the niesr 7 have shown the large impact of simultaneous fiscal consolidation in europe, with around 2 % larger gdp declines due to intra - ea spillovers. optimal policy coordination in the ea would have required differentiated consolidation efforts in line with available fiscal space, leading to better growth outcomes. a last illustration relates to asymmetric adjustment driven by current account imbalances at the country level at the beginning of the crisis and contributing to the large external surplus at the euro area level today. a surplus of more than 3 % of gdp, for an economic area which still has a negative output gap of more than 2 %, is clearly suboptimal. in sum, all these figures point to a significant cost of non - coordination, of at least 2 % of the ea gdp at present. c. to take the debate forward, three principled choices have to be made. these principled choices are needed : ( i ) to resolve the debate between coordination and reforms ; ( ii ) to simplify rules and embrace institution - based policymaking ; in order ( iii ) to achieve full coordination.