##ilisation tool? first, this is precisely the kind of situation i mentioned earlier where we can and should aim to better preempt economic shocks. the ssm is particularly important in this context, as it should help prevent the kind of large financial imbalances we saw in countries like ireland and spain, which subsequently spilled over to the public sector. second, markets are less likely to react negatively to temporarily higher deficits if government debt is clearly sustainable over the medium - term. this can in part be achieved through credible fiscal plans, which act on the numerator of the debt - to - gdp ratio. but it also has to involve raising potential growth through structural reforms, which act on the denominator. and for this reason, governments in fact have a further incentive to enter into closer economic union. insofar as this acts as a commitment device that reforms will indeed by implemented, it will help to raise future government income and improve debt sustainability. and in doing so, it can even help create fiscal space today. moreover, using eu funds more effectively to boost both current demand and future potential – which means raising investment – would have a similar effect on growth and debt sustainability. i therefore welcome the commission ’ s new proposal to stimulate investment spending in europe. what matters is that its size complements the fiscal stance of national governments, that it is deployed quickly so that it can support demand, and that it is targeted towards those sectors where its impact on potential growth will be largest. still, a third conclusion seems unavoidable : that no form of stronger governance can entirely remove the risk of self - fulfilling liquidity crises. i do not think this is a controversial statement. it has already been acknowledged with the creation of the european stability mechanism. and it is also what motivates the ongoing discussion on establishing a backstop for the single resolution fund : the idea is to prevent sovereigns from losing market access based on self - fulfilling expectations of future bailouts. 13 so over the longer - term, it would be natural to reflect further on whether we have done enough in the euro area to preserve at all times the ability to use fiscal policy countercyclically. but it is also clear that such a reflection would have to be part of a larger for a full explanation of this mechanism see acharya, v., i. drechsler, i. and p. schnabl ( 2011 ), “ a pyrrhic victory? bank

mario draghi : stability and prosperity in monetary union speech by mr mario draghi, president of the european central bank, at the university of helsinki, helsinki, 27 november 2014. * * * summary ecb president mario draghi outlined the minimum requirements needed to complete monetary union in a way that offers stability and prosperity for all its members in a speech to students of the university of helsinki. acknowledging that, “ for all its resilience, our union is still incomplete ”, mr draghi argued that, ultimately, member states “ have to be better off inside than they would be outside. ” “ if there are parts of the euro area that are worse off inside the union, doubts may grow about whether they might ultimately have to leave ”. “ the euro is – and has to be – irrevocable in all its member states, not just because the treaties say so, but because without this there cannot be a truly single money ”, he said. in the absence of permanent fiscal transfers among member states, there are two minimum requirements to achieve these objectives : the first is that all euro area countries need to be able to thrive independently, the second is that euro area countries need to invest more in other mechanisms to share the cost of shocks. in a monetary union, the economic performance of any single country cannot be seen as a purely national concern. “ there is a strong case for sovereignty over relevant economic policies to be exercised jointly. that means above all structural reforms ”, the president remarked. but even so, economic adjustments can have short term costs. to ensure that countries are better off being in the union when a shock hits than they would be outside, “ we need other ways to help spread those costs … there is a particular onus on private risk - sharing to play this role ”. in this context mr draghi said barriers to capital markets integration needed to be addressed with urgency. sovereign debt needs also to act as a safe haven in times of economic stress. it can do so first of all through a strong fiscal governance framework. secondly, by having some form of backstop for sovereign debt in place. “ over the longer - term ”, the president concluded, “ it would be natural to reflect further on whether we have done enough in the euro area to preserve at all times the ability to use fiscal policy counter - cyclically. but it is also clear that … this could only take place in the context of a decisive step towards closer fiscal union ”. * *