than previously thought. [ 9 ] during the pandemic, fiscal policies and our independent monetary policy have reinforced each other. [ 10 ] this prevented a repetition of the experience of the global financial crisis, when the procyclical amplification of financial stress and inadequate support for demand resulted in a persistent output gap, high unemployment, financial instability and too - low inflation. the second lesson is that, for emu to be viable, european policies must be conducted for the benefit of all member states. the new model embraced by european authorities during the pandemic avoided the political divisions we saw in the past. this provided evidence of how emu can create a virtuous circle. when we intervene at european level to counteract external shocks, when we promote responsible national fiscal and economic policies, and when we shore up the financial system against self - fulfilling risks of instability and fragmentation, we support the resilience and the progress of the entire euro area. a well - functioning emu in turn supports the integration of european supply chains, boosting autonomy, efficiency and growth. [ 11 ] it strengthens the international role of the euro [ 12 ] and our collective firepower to react to external shocks. and in doing so it delivers both economic and geopolitical benefits to europeans, acting as a collective economic defence clause. the euro area in the new geo - economic context our ability and resolve to make emu work are again being put to the test, this time by the war in ukraine. and macroeconomic policies are facing renewed challenges in the current geopolitical landscape. the versailles declaration : implications for europe ’ s economic governance the russian invasion of ukraine marked a turning point for europe and for globalisation. [ 14 ] when european leaders met in paris on 11 march, they described the current situation as a “ tectonic shift in european history ”, with far - reaching effects on the structure and governance of the european economy. in the ensuing versailles declaration, they recognised europeans ’ collective security as a shared public good and identified three conditions for achieving it : reducing energy dependence, bolstering defence capabilities and building a more robust economic base. the adjustment to this new state of international political and trade relations will be costly and require substantial investment. this investment is also necessary to protect our productive capacity in the face of the current shocks and to avoid a permanent loss of economic potential that could entrench inflationary pressures. in this context and responding to the mandate from the european leaders

the onset of the pandemic, jacques delors warned that the “ germ ” of national divisions was back and that it posed a mortal danger to the european union. [ 2 ] his warning was heeded and our union emerged from the pandemic stronger, with inclusive policies and innovations such as the next generation eu ( ngeu ) programme. following the russian invasion of ukraine, eu leaders took a major step towards european integration with the versailles declaration of march 2022. [ 3 ] to deliver on its strategic objectives – reducing energy dependence, bolstering defence capabilities and building a more robust economic base – we need to continue innovating. 2022 also marks the 30th anniversary of the signing of the maastricht treaty, which transformed the european communities into the european union. this treaty contained two important innovations. first, it granted the european parliament extended powers through the right of co - decision, thereby strengthening the democratic foundations of policymaking in the eu. since then, the parliament has consolidated its role in shaping the eu. second, the treaty enshrined the decision to form economic and monetary union ( emu ) in law. the european parliament is also emu ’ s parliament. and it has been a key promoter of the modernisation of our economic architecture in recent years, alongside the ecb and other eu institutions. so today i would like to reflect on the evolution of european economic governance and then explore the challenges facing the euro area economy and monetary policy in the new geopolitical landscape. the pandemic crisis : a paradigm shift since the maastricht treaty entered into force back in 1993, progress towards emu has been discontinuous, echoing jean monnet ’ s famous statement that “ europe will be forged in crises, and will be the sum of the solutions adopted for those crises ”. the economic framework introduced by the treaty had the specific aim of preventing economic policies from jeopardising the stability of the monetary union as a whole. but this was initially implemented mainly through preventive tools that sought to avoid excessive government spending at national level. the euro area was not prepared to manage large shocks. this weakness was laid bare by the financial crisis. the euro area adopted a flawed policy mix, causing an economic gap to emerge with other major economies. fiscal policy – after briefly intervening to support the economy – procyclically turned towards fiscal consolidation, mainly through uncoordinated interventions that were inconsistent with the fiscal stance that would have