the same time adjusting the composition of their fiscal policies to optimally support the recovery. once these buffers are available, the stability and growth pact provides ample flexibility to adjust fiscal requirements to enable the functioning of automatic stabilisers on a national level and to react to a severe downturn in the euro area as a whole if need be. whether the stability and growth pact should be further reviewed or complemented with new features, such as sovereign debt restructuring mechanisms, to improve ownership and set the right incentives is an open question, with ramifications which go far beyond our discussion today. but in any case, trust will not be rebuilt if we start by unravelling the existing rules. second, we have seen during the crisis that, without monetary policy instruments at the national level, fiscal policies can become overwhelmed if country - specific shocks are very large and not well catered for by the shock - absorbing capacity of the economy and the financial sector. action can and should be taken to reduce the probability and size of such large shocks. the banking union, with its single supervisory mechanism, single resolution mechanism and the new bail - in rules, goes a long way in this direction, provided that all these elements are implemented in a resolute and consistent way. but we cannot responsibly assume that the euro area will from now on be immune to crises. the five presidents ’ report therefore calls for the creation of a shock - absorption capacity at the euro area level to complement the automatic stabilisers of member states. and last but not least, there is ample scope for euro area countries to better absorb shocks internally, by having suitably resilient economies. additionally, we need to improve and strengthen labour mobility and risk - sharing via financial markets. this is another reason why completing the banking union, and why complementing it with a capital markets union with substantial cross - border equity links, is so important. and this also reminds us of the importance of preserving labour mobility from the temptation of raising new fences. a fiscal capacity for the euro area there are many ways a euro area fiscal capacity could be implemented, ranging from simple macro insurance or an unemployment benefit scheme to a fully - fledged euro area budget that could include the provision of public goods. each of these options entails its own technical and political challenges and opportunities. in the end, the choice as to which option or combination bis central bankers ’ speeches of options should be adopted will need to be a political one. this is in fact

recession. it became clear that the lack of regulation did not really support lending over the longer term. in fact, banks were forced to start rebuilding capital in the middle of a slump, which amplified the credit crunch facing the economy and prolonged the recovery from the crisis. europe learnt the lesson. it undertook a swathe of regulatory reforms targeted at banks and nonbanks alike. since 2011, european banks have nearly doubled their core capital ratios to over 14 %. 1 we also saw the creation of european banking supervision to give us a broad european view of risks to financial stability. this meant that, when the pandemic hit, the financial sector could play a fundamentally different role. instead of being a source of instability, banks could be mobilised to enhance our response to the pandemic, rapidly funnelling liquidity to the economy. from march to may last year, bank lending to companies in the euro area rose by almost €250 billion, the largest jump on record in a 1 / 4 bis central bankers'speeches three - month period. the increase in bank capital before the crisis meant that supervisors could free up €120 billion of additional capital for new lending. and thanks to european banking supervision this decision was taken quickly and collectively, rather than in a drawn - out negotiation between multiple national supervisors. this joint european action also averted the risk of stigma that we had previously feared. what the financial crisis taught us, essentially, is that there is no trade - off between effective regulation and supporting growth. a robust financial sector is an asset during a crisis. and our experience during the pandemic has proven the wisdom of this lesson beyond doubt. the importance of credible commitment but the financial crisis also had a more profound impact on europe, morphing into the euro area sovereign debt crisis. i had a unique perspective on this event, witnessing its start when i was a finance minister and seeing it continue to unfold during my time as imf managing director. this crisis produced the second lesson i would like to highlight, which was possibly easier to see when one was looking from the outside. it was clear early on that our monetary union was lacking a full set of institutions and needed to be strengthened. we became painfully aware that the euro area was particularly vulnerable to self - fulfilling panics. what became evident is that the perceived commitment of policymakers was a crucial variable in effective policymaking. initially, we perhaps underestimated how important those perceptions are. it took time to realise