a further area where work is needed is in the governance of the fiscal policy of the member states. there has been tension between reliance on market discipline and budgetary rules. however, the dichotomy between rules and market discipline is overstated. both are needed. at best, rules and market discipline support and complement each other. the obvious lesson is that the institutions and incentives have to be designed so that they help orientate the market forces to meaningful directions – you may call it ‘ market discipline by design ’ – an idea that immediately brings to mind the economic thinking of ludwig erhard, the architect of the german social market economy. so we need fiscal rules, and they should be well designed. the european union fiscal framework can be amended to emphasise national ownership of fiscal rules and to avoid forced pro - cyclical fiscal policy. * * * this analysis of the institutional challenges brings us into the realm of democratic politics and the development of the eu as an organization. the eu is a union of democratic states. it is the citizens ’ preferences and trust that count when the future of the monetary union is decided. today, the enlightenment values, which underpin the european societal model, are challenged, both politically and socially, both from the inside and the outside. politically, a populist and nationalist agenda is tempting to many. socially, the values of tolerance, social market economy and inclusivity are increasingly under threat. on the other hand, let us recall that the europeans value their single currency. according to a fresh eurobarometer survey1, as many as 77 % of euro area citizens support the monetary union and the euro. this is the highest figure since 2004. only 18 % of the citizens of the area say they are against. in finland, the percentage of those “ for ” was even higher, altogether 80 per cent ; in germany as high as 83 %. 4 / 5 bis central bankers'speeches this support for the common currency is of course conditional. it depends on the stability of the euro and its performance. moreover, in any member state, the support for the euro also depends on how successful the economic policy in that particular country is in adjusting the economy to the requirements of life within the monetary union. there is a reason why eurozone reform is anything but a technical matter. it is linked to the overall future of the eu. first and foremost, we need a monetary union that is capable of delivering on the promises made to our citizens — promises of financial

to positive effects of international spillovers. 5 if country - specific shocks have global repercussions and intermediaries in both countries face similar balance sheet constraints ( think usa and the euro area ), a policy implemented in one county will help the other one as well. however, if these policies are costly, they may lead to a free - rider problem in which both countries wait for the policy being implemented in the other. these predictions seem to be confirmed empirically, at least in the us case. the first round of qe seems to have substantially reduced bond yields not only in the us, but also in germany, japan and the uk. 6 it also contributed to the weakening of the us dollar, although the impact on net exports is a bit harder to assess. 7 the evidence for ecb policy spillovers is, on the other hand, much weaker. this may in part be due to the fact that the european central bank focused on reducing intra - euro yields. these operations actually lifted german bond yields as the safe heaven effect subsided and in fact strengthened the euro. the net sale of eurozone bonds ( i. e. net inflows ) was strongly see e. g. cour - thimann and winkler ( 2013 ), “ the ecb ’ s non - standard monetary policy measures ”, ecb working paper no. 1528, april 2013. speech by mario draghi, president of the european central bank at the global investment conference in london 26 july 2012 ( www. ecb. europa. eu / press / key / date / 2012 / html / sp120726. en. html ). rey helene ( 2013 ), “ dilemma not trilemma. the global financial cycle and monetary policy independence ”, paper presented at the jackson hole symposium, august 2013. dedola l., karadi p., lombardo g. ( 2013 ), “ global implications of national unconventional policies ”, journal of monetary economics, no. 60, 2013. neely ch. ( 2013 ), “ unconventional monetary policy had large international effects ”, federal reserve bank of st. louis working paper 2010 – 018d, august 2013. glick r., leduc s. ( 2013 ), “ the effects of unconventional and conventional u. s. monetary policy on the dollar ”, federal reserve bank of san francisco working paper, 2013 – 11, may 2013. bis central bankers ’ speeches reflected in the financial account dynamics and