regain responsibility for its own public finances. the government, parliament and electorate of each euro - area country must be bis central bankers ’ speeches responsible for ensuring that their economy is competitive and performs well, that the country generates growth and employment under its own steam, that its government finances are sustainable in the long term, and that excessive public deficits and debt are eliminated so that the country can absorb cyclical shocks without external assistance. far - reaching reforms are needed to achieve this level of stability. all this is challenging, but shouldn ’ t it really be a matter of course? after all, these are the prerequisites for a stable monetary union. to achieve these aims, to set the right incentives for sound policymaking, we need to lend more weight to the no bail - out principle again. the collective action clauses on recently issued government bonds are a step in the right direction, enabling a bail - in of bond creditors in the event of serious solvency problems. only then will the market have a disciplining effect on government budgets. but as the crisis has shown, the success of this approach of national responsibility hinges on one condition : ensuring that public finance problems do not derail the whole financial system. two things can at least help to ensure that this condition is fulfilled : in the medium term, banks should be obliged to set aside sufficient capital to back government bonds, and they should also be subject to limits on large exposures to governments. such limits have been applied as standard to corporate loans for a long time now. this would make banks more resilient to public finance problems, encouraging them to adjust their demand for government bonds more closely to the level of risk involved. any government with an unsound fiscal policy would face rising interest rates on its bonds. kenneth rogoff, former chief economist at the imf, even views adequate capital backing for government bonds as a far more effective debt brake than the rules of the fiscal compact. incidentally, putting an end to preferential treatment of government debt over corporate loans would also make lending to enterprises more attractive again. and you could all benefit from that, even though there are currently no signs of constraints on lending to enterprises in germany. quite the opposite : credit standards for corporate loans were actually loosened slightly in the first quarter of 2013. however, bank balance sheets don ’ t just reflect government finances but also developments in the real economy. the reforms i ’ ve described will therefore also make the banking system more stable. the

yves mersch : competitiveness of europe and european financial markets panel contribution by mr yves mersch, member of the executive board of the european central bank, at the 30th edition of the workshop " the outlook for the economy and finance ", villa d'este, cernobbio, 6 april 2019. * * * to increase competitiveness is the main driver for higher potential growth. member states have to pursue politics and establish institutions that stimulate the dynamics of a competitive private sector. in most euro area countries potential growth has remained too low, however. labour market rigidities and inefficient business environment conditions seem to be major impediments. in particular, labour supply is held back by policies which do not sufficiently motivate to take up jobs and do not tackle skill mismatch or labour shortages. moreover, investment could be strengthened through fostering competition, improve the business environment and reduce uncertainty e. g. through improving the quality and efficiency of public institutions more generally. despite favourable economic and financing conditions, structural reform progress has been rather limited, including in several of the weakest countries. the trend of insufficient structural reform implementation observed in particular since 2014 has continued during the last year. only a few countries have engaged in more far - reaching structural reforms, most notably greece and france. some countries even reversed recent reforms that had been designed to improve the smooth functioning of the economy, most notably in the areas of labour markets and pension systems. overall, reform efforts were not in line with reform needs. these policy areas concern national competencies, but in a single markets cross - border spillover effects are generated. governments therefore need to act at national levels, enhanced through procedures, rules and harmonization at eu level. against the background of limited reform effort and in spite of the robust cyclical upswing, overall risks and vulnerabilities in many cases have only moderately declined since last year. the commission ’ s annual assessment of country specific recommended reforms finds only limited progress. 1 the progress made is evaluated using five categories : “ no progress ”, “ limited progress ”, “ some progress ”, “ substantial progress ” and “ full implementation ”. “ no progress ” means that the member state concerned did not even “ credibly announce ” measures that would aim to address the policy recommendation. out of 73 country specific recommendations ( csrs ), none saw full implementation, and substantial progress was made in only two cases. for the overwhelming majority of csrs ( more