problems. crisis management by the eu has not been particularly effective in restoring market confidence. while swift and resolute action has been taken towards strengthening the eu ’ s financial architecture, the eu has clearly been running “ behind the curve ” in dealing with the sovereign debt crisis. as a result, the ecb has been confronted with the inevitability of playing a compensating role, testing the limits of its mandate. 3. what do we need to do? as mentioned, the root causes of the current crisis, both the global financial crisis and its ramifications in the euro area, are now well understood. the issue to consider now is what to do. measures have to be taken both at the national and at the eu level. to be successful, national and eu measures need to be consistent, both as regards their design and their timing. at the national level, it is clear that utmost priority must be placed in restoring public debt sustainability, increasing domestic savings and enhancing potential growth in the crisis - hit countries. these are necessary conditions to stabilise external debt and put it on a downward path. these objectives are at the core of the recently approved financial assistance programme to portugal. at the eu level, a new economic governance model is needed to deliver fiscal discipline, prevent sustained losses in competitiveness and promote financial stability. bis central bankers ’ speeches for this purpose, in october 2010, the european council endorsed the proposals put forward by a special task - force on economic governance led by president van rompuy. the new economic governance model will comprise : a reformed stability and growth pact, aimed at enhancing the surveillance of fiscal policies and applying enforcement measures more consistently and at an earlier stage ; new provisions aimed at strengthening national fiscal frameworks ; and a new surveillance mechanism of macroeconomic imbalances. the legislative package that will establish the new economic governance model is being negotiated between the council and the european parliament, and agreement is expected before end - june. the so - called euro pact +, agreed in march by the euro area member states, and joined by 6 other eu countries, aims at strengthening policy coordination even further. the pact focuses on those areas falling under national competence which are key to increasing competitiveness and avoiding potentially disruptive imbalances. it remains to be seen whether the new surveillance framework that will soon be adopted will prove sufficient to ensure a smooth functioning of the euro area. the ecb has highlighted the importance of ensuring greater automaticity in the surveillance and

##nomia portuguesa, lisboa, publicacoes d. quixote. blanchard, olivier and francesco giavazzi ( 2002 ), “ current account deficits in the euro area : the end of the feldstein - horiokka puzzle ”, brookings papers on economic activity, 2 : 147 : 209. de larosiere et al ( 2009 ), report by the high - level group on financial supervision in the eu, http : / / ec. europa. eu / internal _ market / finances / docs / de _ larosiere _ report _ en. pdf european central bank, “ opinion of the european central bank of 16 february 2011 on economic governance reform in the european union ” ( con / 2011 / 13 ), official journal of the european union, 25 / 5 / 2011, http : / / www. ecb. europa. eu / ecb / legal / pdf / c _ 15020110520en00010041. pdf european council conclusions – 24 / 25 march 2011, http : / / www. consilium. europa. eu / uedocs / cms _ data / docs / pressdata / en / ec / 120296. pdf fagan, gabriel and vitor gaspar ( 2008 ), “ adjusting to the euro ”, chapter 4 of bulding the financial foundations of the euro – experiences and challenges, jonung, lars, walkner, christoph and max watson ( eds ), routledge, 2008 ( also available as ecb working paper n. 716, january 2007 ). von rompuy et al ( 2010 ), strengthening economic governance in the eu – report of the task - force to the european council, 21 october 2010, http : / / www. consilium. europa. eu / uedocs / cms _ data / docs / pressdata / en / ec / 117236. pdf bis central bankers ’ speeches