automatic mechanism linking financial support to debt restructuring, because it would attract speculative pressure and precipitate a crisis, even for countries that are solvent. this raises the issue of how to deal with countries that are not in a position to repay all their debt. such a possibility cannot be excluded. again, the experience of the imf shows that there have been cases of debt restructuring associated with fund programmes, even though debt restructuring is not considered in the articles of agreement of the imf. out of 113 imf support programmes over the last 20 years, only 19 countries defaulted or restructured their debts. the countries which went through such action – algeria, argentina, cote d ’ ivoire, dominican republic, ecuador, gabon, grenada, indonesia, kenya, moldova, nigeria, pakistan, paraguay, russia, seychelles, ukraine, uruguay, venezuela, zimbabwe – have characteristics which are not very similar to euro area members. in all these cases restructuring was done on a case - by - case basis, depending on the specific circumstances. it is suggested by some that precise rules and conditions for debt restructuring should be attached to the creation of the new european mechanism, with a view to achieve an orderly restructuring. in my view this is “ unnecessary, undesirable, and unlikely ”, to quote a recent staff paper by the imf. it is unnecessary because experience shows that restructuring can take place even without international norms and without the imf being given specific powers in this field. it is undesirable because there is a risk that norms designed at addressing problems of the past are not any more valid for complex financial systems and may even aggravate the situation. most crises of the past had to deal mainly with foreign creditors of developing countries. in advanced economies the restructuring of the public debt would have to involve a much larger number of financial assets and liabilities, including those of the domestic banking system vis - a - vis residents and non residents. it can be easily seen that there can hardly be anything “ orderly ” in such a process. attempts to work on this issue should certainly not be discouraged. the imf experience in this field is again telling. there studies and discussions on the design of a mechanism for sovereign debt restructuring took much effort and lasted several years. the result was intellectually interesting but ultimately not agreed, neither by the sovereign states neither by financial market participants. this doesn ’ t mean we shouldn ’ t try again. but we should be aware that calling for an orderly debt

because of the feared negative impact on the economy. 2. as countries show hesitation in addressing their budgetary problems, access to financial markets tends to become more difficult. 3. when market access deteriorates, the budgetary measures required to restore confidence are much more drastic and painful. some observers, especially outside europe, have suggested that european democracies are not able to deal with such a vicious circle. they consider that the only way out of the dilemma is a default, or a partial default. some have – even recently – voiced openly this view, maybe with the intent to influence financial markets and increase the probability of such an event to occur ; an event from which they would presumably take profit. this view, however, does not take into consideration that in advanced economies a sovereign default is very damaging for the citizens of the country concerned, as it would drastically affect their wealth. increasing the primary surplus, either by cutting expenditure or by increasing – in certain cases by starting to pay – taxes, has in most cases less damaging effects on the economy and on citizens ’ well - being than a cut in the value of their financial assets. to sum up, consolidating public finances is painful economically and politically, but the alternative is worse. governments in europe are fully aware of this. let me move to the second issue, which concerns the strengthening of the institutional framework underlying the single currency. to understand the issue one should first consider what did not work as expected during the first ten years of the euro. two main things did not work. first, in some countries the behaviour of the private and public sector was not fully consistent with the long run requirements of a single currency area. divergences may occur in currency unions, or even within countries, as some regions may grow more than others and experience booms which then burst. in the euro area, the lack of a federal budget transforms country - specific shocks into public finance shocks and thus financial stability shocks. this is why a currency union like the euro area needs a system of discipline for both the public and the private sector, to be exercised at the level of the member states. the euro area had a system aimed at disciplining the public sector, i. e. the stability and growth pact ( sgp ), with rules and procedures aimed at avoiding excessive deficits. the pact worked in some cases, but not all. the main reason has been that the eurogroup, which comprises the finance ministers of the euro area and