98. 5 % of existing directives, which euro area countries have great difficulty to meet. moreover, the lisbon agenda stresses the importance of a supportive environment for innovative activity, including closer ties between universities and firms and a strengthening of the education systems in eu countries. • regarding the reforms on labour markets, the lisbon agenda points to an increasing use of flexible arrangements for labour contracts, such as the increased use of part - and flex - time work, as well as to improvements in the wage bargaining process to better take into account regional and firm - level disparities. moreover, the agenda proposes changes in the institutional framework to improve the functioning of both active and passive labour market policies. once introduced, these reforms should help eu countries to reach the target of an employment rate of 70 % that has been fixed by the agenda. strengthening of european monitoring structures this leads me to my last point : how to improve the framework on the european level to better monitor and implement much needed structural reforms. as has been stressed at the recent european council, monitoring and implementation of the lisbon agenda are the key to proceed with structural reforms in the eu. in particular, two approaches that have been used in the past and that could be further developed to provide powerful tools in this area. one concerns the process of benchmarking to be used as a tool to determine best practices across the euro area - and eventually industrialised countries more generally. the other regards the existing european structures of monitoring and peer pressure to proceed with structural reforms in the eu. after two decades of structural reforms across developed economies, much experience has been gained as to what policies have performed well compared to the status quo. some of this experience has been used to form important reform agendas both on the eu level and the level of individual countries. i have just mentioned two of the most important ones : the single market initiative and the lisbon agenda. in particular, recent propositions by the ecofin council regarding benchmarking member states ’ performances in terms of progress towards the lisbon goals and a specific mid - term review of the lisbon strategy would be very welcome to complement existing efforts in this area. but there are other experiences - also outside the euro area - that could be fruitfully reviewed and used to inform our views on particular issues. for instance, the recent corporate governance problems, both in the us and the euro area, show that there is still much to be learned for further structural reforms in this area. moreover, policy makers and international organisations have started to

fragmentation when a crisis strikes – and in some ways, even more so than before. 2 / 3 bis central bankers'speeches fiscal consolidation therefore needs to go hand in hand with efforts strengthening our area - wide defences. of course, the esm is already an important safeguard. but we need to enhance its competences in the field of crisis management and make it more agile. this includes making full use of its existing instruments, such as the direct bank recapitalisation tool and precautionary financial assistance, and moving away from the unanimity requirement. and in the long run, it means bringing the esm into the community framework. the stability of the euro area cannot be in the hands of one, or a few, member states and their parliaments. ultimately, the esm needs to be accountable to the people of europe. but union stabilisation cannot stop with the esm. the euro area needs a fiscal instrument that can help it cope with large shocks without having to rely excessively on the ecb. such an instrument would be the third line of defence of our monetary union. it would support aggregate demand in countries experiencing a crisis, drawing on common funds. it would thereby provide an additional layer of stabilisation that safeguards trust in national policies. eu solidarity would then take on a whole new meaning. whether such an instrument would directly support national safety nets, or would instead undertake investment projects that create jobs and income, will be subject to much debate. whether it should be balanced by stronger market discipline will be even more heatedly debated. these discussions will take time. however important, they should not obscure what should be governments ’ urgent priority : strengthening the first two lines of defence of our monetary union. achieving lasting economic stability must involve finding a balance of discipline and flexibility in our economies. this will both strengthen support for the euro and help alleviate the pressure and burden on the ecb in crisis times. realpolitik will dictate the speed of reforms. what we do need is broad agreement that they will be built on these three lines of defence, and visible progress on the first two. thank you. 3 / 3 bis central bankers'speeches