central bankers ’ speeches performance and their rankings in governance indices published by, among others, the world economic forum and transparency international. the contracts provide an opportunity, if used properly, to “ go deep ” and address these more fundamental barriers to competitiveness. building a stronger economic union along these lines is necessary to correct what might be called an “ original sin ” of emu : the fact that the convergence criteria did not include any structural benchmarks for joining the euro, and hence structural policies remained mainly within the national remit. 3. areas for further progress in the future what about those areas that were not outcomes of the european council and where there is room for further progress in the future? the most important is greater sharing of sovereignty. the importance of credible governance has been starkly demonstrated during the crisis. countries without credible policies have been forced by markets to consolidate more rapidly than others in the downturn. this is because markets have not trusted that they can run sufficient surpluses in good times, or achieve sufficient growth, to lower debt levels and ensure long - term sustainability. paradoxically, the lack of strong external constraints on fiscal and economic policies has led to countries losing substantive sovereignty in these areas. by the same token, countries now need to share more sovereignty in order to regain their sovereignty. by sharing decision - making with the european level, they can restore their policy credibility with investors, while at the same time having a voice over where they are heading. this will mean going beyond the maastricht logic of national responsibility for fiscal and structural policies, and committing to governance arrangements that are actually enforceable – for instance, allowing for intervention rights by the center to prevent unsound national budgets. sharing sovereignty implies a number of other changes to euro area governance. first, there have to be strong institutions in order to exercise that sovereignty effectively. this will require a stronger eurogroup. second, those european institutions have to be properly democratically legitimated. this requires changes in the way the citizens participate in the european political process, in particular via the european parliament. let me stress : while i would have liked the outcome of the european council to be more ambitious, these ideas are not intended as criticism of it. they are orientations to advance further which will need to be properly fleshed out in the years ahead as the integration process evolves. this will require a treaty change in the medium - term in order to complete emu in a comprehensive way. 4. conclusion one year ago,

the euro area was facing an uncertain future. but those painted a dark picture at that time have been proven wrong. one year later, europe has proven its ability to act and we have begun to set the euro area on a more convincing path. it is now critical that, over the next year, we continue down this path and provide emu with institutions it needs to advance. putting in place a genuine financial union and a stronger economic union must be our key priorities for 2013. it is essential that the appearance of calm on financial markets does not distract from the urgent need to address the euro area ’ s fundamental challenges. moreover, we should also not row back on what has already been achieved. implementing the fiscal compact and adopting the “ two pack ” of legislation in 2013 are essential to strengthen the fiscal framework. we should not undermine this by re - opening discussions on what constitutes “ good ” or “ bad ” deficits by arguing for exemptions for public investment. all bis central bankers ’ speeches deficits have to be financed on financial markets and increase public debt stocks – and this is the opposite of what we need next year. however, this focus on 2013 does not mean we should lose sight of the big picture. it is instructive to notice how little markets are reacting to the “ fiscal cliff ” debate in the us, while they are jolted by the prospect of earlier than planned elections in italy. our long - term goal is a situation where the essential functioning of the euro area is unaffected by events in individual countries, because sovereignty is shared and exercised in strong common institutions – and those institutions have a longer time horizon than politics. this is what jean monnet understood when he said : “ rien n ’ est possible sans les hommes, rien n ’ est durable sans les institutions ”. “ nothing is possible without men, but nothing is lasting without institutions ”. these words have never been more true than today. thank you for your attention. bis central bankers ’ speeches