fact, because those economic booms were based on stronger domestic consumption and rising property prices, they led to improvements in cyclical fiscal balances as long as the boom went on, so that governments had few incentives to tighten fiscal policy before the bust set in. 2 the accumulation of imbalances was exacerbated by institutional deficiencies the question naturally arises as to why this unsustainable degree of heterogeneity occurred in the euro area and not the united states. in the united states, regional imbalances tend to be more mean - reverting, owing to higher levels of labour mobility and more flexible product and labour markets. at the same time, there is also less scope for unsustainable accumulation of debt at state level. most states have adopted legislation that prevents them from accumulating the levels of debt seen in the euro area. 3 the institutional design of the euro area has clearly given rise to moral hazard and lacked the capacity to credibly engage in measures to prevent rising imbalances. 4 although there was an unseen accumulation of debt in some euro area countries, financial markets were allowed to set financial conditions in such a way that private and public sector borrowers in those countries could essentially continue to borrow at the same interest rates as borrowers in countries with much sounder fiscal and macroeconomic fundamentals. as a result, financial flows ran from countries with strong productivity growth to countries with weak productivity growth, fuelling a persistent economic boom based on the accumulation of debt. to be efficient, financial flows should instead have run towards countries with higher levels of productivity growth. heterogeneity during the crisis and the ecb ’ s response the financial crisis has led to a strong increase in heterogeneity within the euro area. the re - emergence of cross - country differentials in terms of financial conditions has contributed to divergence in macroeconomic and financial fundamentals. conversely, these heterogeneous financial conditions mainly reflect persistent fiscal, macroeconomic and financial imbalances, as well as persistent structural problems in several countries. the first dimension of heterogeneity concerns real developments. some countries have recovered well while others continue to be affected by persistent structural problems. but some of the macroeconomic imbalances have begun to adjust. competitiveness has improved in countries where labour costs used to persistently exceed the euro area average. that being said, such adjustment has remained too limited. sizeable imbalances persist, particularly

council emphasizes this point, which is essential for the stability of the single currency and is necessary to favour growth, job creation and the fight against unemployment. one of the difficulties encountered by europe, as by france, is that public opinion is not yet entirely convinced. however, four simple arguments form the basis of this recommendation : preserve, thanks to the confidence of investors, low medium - and longterm market interest rates, generate the financial resources necessary for productive sector investment, strengthen the confidence of the personal sector and bolster that of the corporate sector. it should be added that all monetary union member countries have to have budgets that are close to balance or in surplus, precisely in order to allow public finances to act, where necessary, as “ automatic stabilizers ” when economic conditions deteriorate. this point is essential, most particularly in the event of “ asymmetric shocks ”, i. e. particular economic difficulties affecting one member country, but not the others. – last, as it has done constantly in recent years, the monetary policy council calls attention to the need to gradually reduce the ratio of public expenditure to gdp. according to oecd methodology, in france public spending amounts to 54. 2 % of gdp, well above the euro - area average of 48. 7 % and the group of seven leading industrialized countries average of 38. 1 %. bringing this ratio back below 50 % is a primary objective, even though it is timid in comparison with the performances of france ’ s partners. this greater rectitude in the management of public finances is a vital condition of competitiveness, growth and the development of employment in france. in this respect, one may note that the policy mix in the united states is based on the conviction that the resolute policy of public deficit reduction has been one of the main engines of the vigorous growth enjoyed by the us for many years. structural reform the effectiveness of economic policies is not simply the result of the right mix of fiscal and monetary policy. structural policies themselves have a major part to play. this is particularly true in france and throughout the euro area, where around three quarters of unemployment is structural. as with the level of public expenditure, european public opinion is again not sufficiently convinced that mass unemployment is very largely the unfortunate result of structural defects. when the public is convinced, it is likely that the problem will be easier to resolve since european leaders will then more readily find the support essential for the successful completion of reforms that as a