imbalances. but even the best rules only work if they are respected. and even the best rules may not prevent a country from experiencing economic shocks.... but union also means community for cases where these shocks are too big to be absorbed at national level, a monetary union needs mechanisms to spread the ensuing costs over more than one pair of shoulders. and this brings me to the second question : how can risks be shared at european level without a transfer of risk occurring which distorts the incentives for the individual member states? i mentioned this earlier : during the crisis, risks were shared especially by way of mutual guarantees and thus via national budgets. however, such a sharing of fiscal risks can reduce the incentives to pursue sound fiscal policies. in order to counter this disincentive, both the risks and the monitoring would therefore have to be shared at european level. so the presidents of the european institutions 3 – including the ecb – are calling for stronger fiscal integration leading to a fiscal union. for the moment, i see little political will to create a european fiscal union. fiscal risk - sharing, for the time being, therefore remains a problematic issue. as long as the basic willingness to share fiscal sovereignty is lacking, we could and should then agree that sovereignty will be relinquished if a member state does not comply with the jointly agreed objectives, such as the deficit and debt limits. at the same time, it ’ s necessary to strengthen national ownership and private risk - sharing. from an economic perspective, it would seem obvious : if a state gets into financial difficulty, why shouldn ’ t the state ’ s creditors bear the losses? in reality however, this is not so easy to implement. bear in mind how long it took to arrange that for the resolution of banks their creditors will also be liable in the future. where does the problem lie? it lies in the possible contagion effects and in concerns about financial stability. the creditors of countries are in many cases the domestic banks. a state bankruptcy with a bail - in could therefore trigger a financial crisis. masuch, k. ; moshammer, e. ; pierluigi, beatrice ( 2016 ), institutions and growth in europe. centre for european policy studies ( ceps working document no. 421 ). “ completing europe ’ s economic and monetary union ”, presented by j. - c. juncker, in close cooperation with d. tusk, j. dijsselbloem, m. drag

overwhelmed. this is exactly what we have seen during the recent crisis. the costs of the crisis were borne in large part by the citizens in the crisis countries, but also shifted in part to the european level through mutual guarantees. basically, the countries concerned resorted to a sort of implicit insurance that was not originally foreseen. this experience gives rise to two key questions : • first, how can member states better absorb external shocks – even without an independent exchange rate and without a national monetary policy? • second, how can risks be shared at european level without a transfer of risk occurring which distorts the incentives for the individual member states? a monetary union needs strong members... as for the first question, the euro area countries need economic structures which meet the requirements of a single currency. the crisis has made this abundantly clear. many countries are now on the right track. ireland, spain and portugal, for example, have implemented a series of reforms ; they have become more competitive and their economies are recovering. and yet, in some euro area countries, unemployment remains very high, especially among young people. in addition, many countries still have large public deficits and high levels of debt. so further reforms are necessary here. the same applies to goods markets and the general business environment. in many member states bureaucratic hurdles have to be overcome in order to start a business, and not only in the crisis countries. removing such administrative barriers is much bis central bankers ’ speeches less expensive than national recovery plans, and can contribute significantly to sustained growth and increasing prosperity. 2 it is all the more worrying that the oecd in its recent “ economic policy reforms ” report notes that particularly in the euro area countries the pace of reform is slowing. it would be disastrous if necessary reforms cannot be implemented or, if implemented, reforms were even to be withdrawn. that would slow down, or even totally impede, the necessary economic upswing. central banks would then come under pressure to counteract this by pursuing an exceptionally loose monetary policy. a stable monetary union rests on the shoulders of individual member states. sound economic and responsible fiscal policies at national level are an essential basis for a stable monetary union. against this background, the founders of the monetary union put in place a rulebook that seeks to ensure sound fiscal policy : the stability and growth pact. we all know that these rules were not particularly effective. they have therefore been strengthened since the crisis and complemented by a better control of macroeconomic