enlargement, all of which supports this process. these trends will eventually help productivity and growth in europe to start to catch up with the us again. but in the short term the structural changes will lead to higher frictional unemployment as old industries are more rapidly replaced by new ones. in addition, the recent downturn never led to a dramatic increase in unemployment or decrease in employment in the euro area ; hence, the upturn is probably also less likely to lead to rapid job creation. both factors create new incentives for fiscal policy to focus more on short - term job creation schemes and less on long - term fiscal soundness. so from this perspective, too, the hope that the recovery alone will “ fix ” the european deficit problem might be too optimistic. and the new member states are not much different in this respect. they have experienced a decade of incredible structural change, and yet more is ahead. furthermore the new member states have great infrastructure needs and, coupled with high unemployment, there will be continued pressure for fiscal expansion, even in a cyclical upturn. so what is the solution? let me first note an interesting development : since 1999 the average fiscal deficit in the euro area has been 1. 6 per cent of gdp while the average surplus of the three old outcountries ( the uk, denmark and sweden ) has been 0. 5 per cent of gdp. some euro - sceptics will of course attribute this difference to monetary union itself but i think the difference is that all three out - countries have been forced to find new ways of building a strong national macroeconomic framework based on clearly stated goals and a transparent evaluation of how these goals are to be met, in addition to the common eu rules. the part that has been much in focus has been the monetary policy regime - in sweden and the uk, inflation targeting with a specific target for inflation and regular and transparent inflation forecasts has worked well. but inflation targeting, or for that matter denmark ’ s euro peg, would never have been as successful had fiscal policy not been reformed in parallel, with clear rules and budgetary ceilings in all three out - countries, which put the problems squarely in the sight of the public. in fact those euro zone countries that have some sort of national transparent targets and evaluation of fiscal policy, such as finland, have managed to retain some order in their public finances. the power of targets and transparency is that the public, with the help of comments from analysts in the media, can

##s and levels of gdp per capita [ 14 ]. the abrupt adjustment necessitated by the crisis showed the economic and social cost of this divergence. political convergence is a necessary condition for economic convergence [ 15 ], as it implies making economic and fiscal policy a shared competence in the same manner as policies relating to the internal market. this is particularly true for france and germany, whose cooperation is a driving force. the idea isn ’ t to always move towards harmonisation, but rather to give ourselves the option to adopt common solutions where it makes sense to do so – a common framework to manage insolvent businesses and households could, for example, facilitate the resolution of non - performing loans and contribute to the development of crossborder investment. relaunching the economic convergence process is also essential if we eventually want to set up a fiscal tool to absorb shocks at the euro area level, without creating the risk of permanent, one - way transfers, which are not part of the euro area ’ s initial “ contract ”. as i said elsewhere, this is about establishing a new european social contract, which can only be designed under john rawls ’ “ veil of ignorance ” [ 16 ]. the private sector component of risk - sharing is also extremely important – in the united states, the capital and credit markets act as a buffer for around two - thirds of economic shocks [ 17 ] ; flexible economies and the free movement of goods, services and workers are necessary conditions for the smooth functioning of the monetary union. again, however, risk - sharing must be accompanied by a common framework that avoids excessive risk concentration. this is the essence of the ongoing debates concerning the european deposit guarantee scheme and the capital markets union. this economic convergence process could include a timeline and clearly defined milestones, and would ultimately bring about deeper integration in the fiscal sphere and the creation of shared fiscal tools. the management of these tools, including the european stability mechanism, could be entrusted to a euro area treasury that is accountable to the european parliament. defining its mandate and its tools is a political issue that presupposes a democratic debate [ 18 ]. ladies and gentlemen, the progress of european integration has increased interdependence between member states. but we still haven ’ t drawn all the necessary conclusions and european politicians still don ’ t have the tools that would allow them to respond to the expectations placed on them. this shortcoming feeds popular frustration with european policies, sometimes to the point that they question european integration itself. there